Petition for Writ of Certiorari — Park Manor Manor, Ltd. v. Department of Health and Human Services (No. 07-537)

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me Court, U.S.

Suprey ILED

nog 7-537 007 19 2007

OFFICE OF THE CLERK

In The

Supreme Court of the Anited States

PARK MANOR, LTD..,

Petitioner,

U.S. DEPARTMENT OF

HEALTH AND HUMAN SERVICES

AND

CENTERS FOR MEDICARE

AND MEDICAID SERVICES,

Respondents.

On Petition For A Writ Of Certiorari

To The United States Court Of Appeals

For The Seventh Circuit

PETITION FOR A WRIT OF CERTIORARI

ROBERT M. HESSLINK, JR.

HESSLINK LAW OFFICES, S.C.

State Bar No. 1013876

Counsel of Record for Petitioner

P.O. Box 930005

Verona, WI! 53593-0005

(608) 845-3775

(OOCRKLE LAW BRIEF PRINTING Con seer 225 ened

ORCALL COLLECT 2) 342-25.3

QUESTIONS PRESENTED

1. Is a non-governmental party who prevails in

an administrative rule enforcement proceeding

thereby barred from obtaining an award of attorneys

fees under the “excessive demand” provisions of 5

U.S.C. §504(a\(4)?

2. What legal standard should be applied in

determining whether an agency’s demand is substan-

tially in excess of the decision and is unreasonable

when compared with such decision, within the mean-

ing of 5 U.S.C. §504( a4)?

3. Is an agency required to establish that its

actions that prompted administrative litigation had a

reasonable basis in fact and law in order to avoid an

award of the attorneys fees incurred in that proceed-

ing under 5 U.S.C. §504(a)(1) if the agency’s actions

were designed to advance public health or safety?

4. Is an agency's position substantially justified

if some of its position has a reasonable basis in fact

and law but the larger portion of it does not?

CORPORATE DISCLOSURE STATEMENT

Park Manor, Ltd. is a Wisconsin corporation.

There is no parent corporation. There is no publicly

held company that has an ownership interest in Park

Manor, Ltd.

ill

TABLE OF CONTENTS

Page

QUESTIONS PRESENTED.................cccessceseseees i

CORPORATE DISCLOSURE STATEMENT ...... il

EPS BIE FE Nini stkcesevorcveveneiesivnseesectns Vv

TABLE OF AUTHORITIES. ........c0cccscsescoccesecsveess vi

Ce eae UE SG OE pxntadenvntccecsdvenindcdenicocsemnntouncons 1

STATEMENT OF JURISDICTION. .................... 1

STATUTES AND REGULATIONS INVOLVED ..... 2

STATEMENT OF THE CASE................cccsecceseees 2

REASONS FOR GRANTING THE PETITION... 8

I. THE CIRCUIT COURT’S INTERPRETA-

TION OF 5 U.S.C. §504(a)(4) WAR-

RANTS REVIEW BY THIS COURT......... 10

A. Whether Prevailing Litigants Should

Be Barred From Recovering Under 5

U.S.C. §504(a)(4) Is An Important Is-

sue Of Federal Law That Should Be

SOUL Fy TS CGS S oaccsnecsesescssncncienss 11

B. The Decision Of The Seventh Circuit

Is Based On A Standard For Deter-

mining When A Demand Is Excessive

That Does Not Represent The Only

Reasonable Construction Of 5 U.S.C.

IIE MIT scs cincedincicies nmin ed dbaseaieeteoweeceens 17

TABLE OF CONTENTS -— Continued

Page

Il. THE HOLDING THAT AN AGENCY

WHICH ENFORCES PUBLIC HEALTH

OR SAFETY REQUIREMENTS CAN BE

RELIEVED OF ITS OBLIGATION TO

PROVE THAT ITS PRE-LITIGATION PO-

SITION WAS SUBSTANTIALLY JUSTI-

FIED WARRANTS REVIEW

A. The Creation Of A Separate Standard

Of Reasonableness For Agencies

Which Regulate In The Areas Of Pub-

lic Health Or Safety Should Only Be

Done After A Thorough Review By

This Court

. The Circuit Court’s Holding That

CMS Is Not Required To Investigate

Prior To Imposing Remedies Is In Ap-

parent Conflict With Principles Es-

tablished By A Decision Of Another

Circuit Court

THE DAB’S CONCLUSION, THAT AN

AGENCY’S POSITION IS SUBSTAN-

TIALLY JUSTIFIED IF SOME ALLE-

GATIONS HAVE A REASONABLE

BASIS IN FACT AND LAW BUT THE

LARGER PORTION DOES NOT, CON-

FLICTS WITH DECISIONS OF OTHER

CIRCUIT COURTS

CONCLUSION

TABLE OF APPENDIX

Opinion of the United States Court of Appeals

for the Seventh Circuit Decided July 23,

December 16, 2005 Decision of the Departmen-

tal Appeals Board Presiding Board Member

Judith A. Ballard and Board Members Ce-

cilia Sparks Ford and Donald F. Garrett,

Decision No. 2005

March 31, 2006 Addendum to Decision No.

2005 of the Departmental Appeals Board

Presiding Board Member Judith A. Ballard

and Board Members Cecilia Sparks Ford and

Donald F. Garrett

June 17, 2004 Decision of the Departmental

Appeals Board Presiding Board Member Ju-

dith A. Ballard and Board Members Cecilia

Sparks Ford and Donald F. Garrett, Decision

No. 1926

5 U.S.C. §504

Page

rN NB visirnccenandcecianec th badeceseeinieneroatouieves App.

rs ks hiccatascn'd saa onacenctscrenataaenians App.

er isin nly todtecanidenaenrcnrnconedians App.

ar i a icsicnieai Neacidicsavactnnipvecipicinioes App.

ee Se aiticcethin ks App.

ee I isaac cs acd yccidcansuainpegshiedaenin ain App.

TABLE OF AUTHORITIES

Page

CASES

Air Transp. Ass’n of Can. v. Fed. Aviation

Admin., 156 F.3d 1329 (D.C. Cir. 1998)........... 30, 31

Alphin v. Nat'l Transp. Safety Bd., 839 F.2d

Fs, MOE UID caiesacacsauaceencninecaensevicieesuebiamesenais 30

American Wrecking Corp. v. Sec’y of Labor, 364

F.3d 321 (D.C. Cir. 2004)........ ibehiabiieenitiatien 12, 13, 14

Baldi Bros. Constructors v. U.S., 52 Fed. Cl. 78

I ica stihl aca accion tbe kk dine inca aeiediidtion 22

Clermont Nursing and Convalescent Ctr. v.

CMS, DAB No. CR1087, 2003 WL 22326547

II EIUEEIITIIED vii ssnWousscgnosssoeausiveeecmnssueieicbunlesernees 24

Commissioner, I.N.S. v. Jean, 496 U.S. 154

INIT schichinticuesiiavisdbehanttateonsimuaneeunaareaiens 8, 9, 26, 27, 29

Community Hosp. of Long Beach v. CMS, DAB

No. 1938 (08/18/04), 2004 WL 2102876 (HHS)......... 24

Contractor’s Sand and Gravel, Inc. v. Federal

Mine Safety and Health Review Comm’n, 199

F.36 1996 (D.C. Civ. SO0D)....nccccccscoccccscsvesess 23, 27, 28

Delta Air Lines, Inc. v. August, 450 U.S. 346

8 RENE RETA Pap On ler Cone eee ee enor Ora LT 15, 16

Donovan v. Dialamerica Marketing, Inc., 757

Be BT CO GAT, FBG) on cecccceeivctinnsecevnepispenccestccen 21

Dougherty v. Lehman, 711 F.2d 555 (3rd Cir.

LEAR ery See Oe On ERT Raine RE? neC ane NT 20

Enerhaul, Inc. v. N.L.R.B., 710 F.2d 748 (11th

Ey | SEER eee eee orev TO Genesee aers ony 21

TABLE OF AUTHORITIES - Continued

EuroPlast, Ltd. v. N.L.R.B., 33 F.3d 16 (7th Cir.

FJ. Vollmer Co., Inc. v. Magaw, 102 F.3d 591

(D.C. Cir. 1996)

Hanover Potato Prod., Inc. v. Shalala, 989 F.2d

123 (3rd Cir. 1993)

Harmony Court v. CMS, DAB Dec. No. 1968

(2005), Medicare and Medicaid Guide (CCH)

{ 120803, 2005 WL 835751

Iowa Express Distribution, Inc. v. N.L.R.B., 739

F.2d 1305 (8th Cir. 1984)

KMS Fusion, Inc. v. U.S., 39 Fed. Cl. 593

(1997)

Marcus v. Shalala, 17 F.3d 1033 (7th Cir. 1994)

Mobil Oil Exploration & Producing Southeast,

Inc. v. United Distribution, 498 U.S. 211

(1991)

Park Manor, Ltd. v. U.S. Dept. of Health and

Human Services, 495 F.3d 433 (7th Cir. 2007)

Park Manor Nursing Home v. Centers for

Medicare & Medicaid Services, DAB No.

2005 (2005), 2005 WL 3753088 (HHS)

Park Manor Nursing Home v. Centers for

Medicare & Medicaid Services, DAB No.

1926 (2004), Med & Med GD (CCH)

{ 120676, 2004 WL 1764725 (HHS)

Pennsylvania Dep't of Public Welfare v. Daven-

port, 495 U.S. 552 (1990)

vill

TABLE 6: AUTHORITIES — Continued

Pettyjohn v. Chater, 888 F.Supp. 1065 (D.C.

Colo. 1995)

Phil Smidt & Son, Inc. v. N.L.R.B., 810 F.2d

638 (7th Cir. 1987)

Pierce v. Underwood, 487 U.S. 552 (1988).....8, 9, 20, 22

Prod. & Maint. Employees’ Local 504 v. Road-

master Corp., 954 F.2d 1397 (7th Cir. 1992) 20

Roanoke River Basin Ass’n v. Hudson, 991 F.2d

132 (4th Cir. 1993)

Sec’y of Labor v. Wolkow Braker Roofing Corp.,

19 O.S.H. Cas. (BNA) 1267, 2000 O.S.H.D.

(CCH) 132199, 2000 WL 1466087

Sec’y of Labor, Mine Safety and Health Admini-

stration (MSHA) v. L & T Fabrication &

Constr, Inc., 22 FMSHRC 509, 2000

O.S.H.D. (CCH) 732092, 2000 WL 687693

(FF EB Net ioc bisceausedcdedaaibadvebetaiedtmiaaianaaans 9,18

U.S. v. Hallmark Constr. Co., 200 F.3d 1076

(7th Cir. 2000)

U.S. v. One 1997 Toyota Land Cruiser, 248 F.3d

899 (9th Cir. 2001)

U.S. v. Jones, 125 F.3d 1418 (11th Cir. 1997)

STATUTES AND REGULATIONS

5 U.S.C. §504

5 U.S.C. §504(a)(1) passim

Dy UL, BRNO) wovinccctcisttiosanciccntecssecneceedeumaaae 2

TABLE OF AUTHORITIES — Continued

Page

I I on vccevenncsseensssevevesvsssesescenseeve passim

BUB.C. SBOE INE) .......0..cccsccccvesesrersers 20, 23, 25, 26

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Rs, EE PEA ERED) caso cevecsevevscesesesveeseveseessonss 13, 14

SC 2

Nees sss scuvwnneescvevennsiversvers 4

Neen Lac cccivensusbsstvenseverensesceeseseseeeseses 2

nn a. insncansssevesnsesousncesvesesrseeoress 3

Teens irdas cickendseuvevevereesvedvercerveses 2

es Ly svin esse cbsetinsevionvevecnusveececcenes 2

ass icssudaxtueregvesivedssseesaccovcesesesosrevens 2

Neen id as ccvwknneensuavenesecstevenescssees 2

Nee ee ds ccsuseveaeurseencvesceessaecousececeueveseee 2

I EIN osc. ccusenivnsencesesescecnsecescccscccsvecececeosees 11

EE cs cvvecsanucvrsceseversseccscovecescorcevecsvecesceessese 2

OTHER AUTHORITIES

ccs can cuvexsnvocscevevsecsevescssscscecvosscssecesess 15

Pub. L. No. 104-121, 110 Stat 847... 8

OPINIONS BELOW

The opinion of the United States Court of Ap-

peals for the Seventh Circuit is reported at Park

Manor, Ltd. v. U.S. Dept. of Health and Human

Services, 495 F.3d 433 (7th Cir. 2007). (App. 1)

The Seventh Circuit affirmed decisions of the

Department of Health and Human Services Depart-

mental Appeals Board. The primary decision is Park

Manor Nursing Home v. Centers for Medicare &

Medicaid Services, DAB No. 2005 (2005), 2005 WL

3753088 (HHS). (App. 9) The DAB’s supplemental

decision dated March 31, 2006 is unreported. (App.

135)

The decision on the merits of the case by the

Departmental Appeals Board is Park Manor Nursing

Home v. Centers for Medicare & Medicaid Services,

DAB No. 1926 (2004), Med & Med GD (CCH)

4120676, 2004 WL 1764725 (HHS). (App. 157)

STATEMENT OF JURISDICTION

This Court’s jurisdiction is invoked under 28

U.S.C. §1254(1) to review the circuit court’s decision

on a writ of certiorari. This case seeks review of the

final decision of the Court of Appeals for the Seventh

Circuit affirming a decision of the Department of

Health and Human Services Departmental Appeals

Board (DAB) on an application for attorneys fees

under the Equal Access to Justice Act. The DAB had

jurisdiction over the fee claim under 5 U.S.C.

§504(a)(2). The circuit court had jurisdiction to review

the agency decisions under 5 U.S.C. §504(c)(2) and 42

U.S.C. §$1320a-7a(e). The circuit court’s decision was

issued on July 23, 2007.

STATUTES AND REGULATIONS INVOLVED

The statute involved in this case is 5 U.S.C. §504,

the Equal Access to Justice Act and, because it is

lengthy, it is printed verbatim in the appendix at

pages 177-182. The regulations involved are 45 C.F.R.

§§13.1-13.6, which are also printed verbatim in the

appendix at pages 183-191.

STATEMENT OF THE CASE

42 C.F.R. §488.308 requires that all nursing

homes who provide services to Medicare eligible

individuals be surveyed at least annually to deter-

mine if they are being operated in compliance with

federal requirements. The Department of Health and

Human Services (HHS) contracts with a state agency

in Wisconsin to conduct these surveys of Wisconsin

nursing homes on HHS’s behalf. Centers for Medicare

and Medicaid Services (CMS) administers this pro-

gram within HHS.

_ Following a March 2001 annual survey, the state

survey agency issued a 123-page statement of defi-

ciency (SOD) to Park Manor, a Wisconsin nursing

home. That SOD alleged 22 deficiencies, or failures to

comply with federal requirements. Six deficiencies

alleged actual harm to residents and one alleged a

situation of immediate jeopardy (IJ), the most severe

form of deficiency. A substandard care allegation imme-

diately suspended Park Manor’s nurse aide training

and competency evaluation program (NATCEP) for two

years. CMS approved all of these recommended find-

ings by the state survey agency and imposed the

NATCEP suspension, a $12,400 civil money penalty

(CMP) for the IJ, and a continuing CMP of $250 per

day for the other alleged deficiencies.

Following a June 2001 verification visit (VV), the

state agency recommended, and CMS approved, six

additional deficiencies, including one that was a

“repeat” of a deficiency cited in the March survey.

CMS then imposed the remedy of a suspension of

reimbursement for new admissions, and it continued

the accrual of the daily CMPs. Park Manor timely

appealed all of these deficiencies and remedies.

The IJ and substandard care determinations, and

a number of the alleged deficiencies, were dismissed

in informal dispute resolution (IDR) proceedings

while the appeal process was pending.’ This dismissal

’ IDR proceedings represent an opportunity for a facility to

informally dispute survey findings. 42 C.F.R. §488.331.

caused the $12,400 CMP for the IJ to be set aside.

Following a subsequent VV which found Park Manor

in substantial compliance, the amount of the daily

CMP imposed by CMS for the remaining deficiencies

was set at $250 per day for 124 days, or $31,000.

The ALJ issued a prehearing order which re-

quired each party to disclose the evidence it had to

support its position(s). CMS elected to go forward to

hearing with six deficiencies from the initial survey

and one from the VV and it reduced its demand for a

CMP to $150 per day. Two of those seven deficiencies

were subsequently dismissed on Park Manor’s motion

for summary disposition, including the only remain-

ing VV deficiency. That ruling set aside the suspen-

sion of reimbursement for new admissions. It also

reduced the number of days on which a daily CMP

could be imposed to the days between the date of the

survey and the date of the June VV.

After an evidentiary hearing on the remaining

five allegations, the ALJ upheld that daily CMP. His

decision was based on one deficiency, an alleged

failure to consult with a doctor concerning a signifi-

cant change of condition. The ALJ concluded that this

one deficiency was sufficient to sustain the remaining

remedy. Since the total amount of the CMP was

greater than $5,000, the NATCEP suspension was

also upheld. See 42 C.F.R. §483.151. The ALJ’s deci-

sion did not address the remaining four deficiencies,

which had been alleged at a lesser degree of serious-

ness.

On review, the DAB dismissed the physician

consultation deficiency. It concluded that CMS and

the ALJ had misapplied the regulations and that

there was undisputed evidence that the changes at

issue had occurred before Park Manor’s previous

report to the physician and the resident wanted

comfort measures only. It also concluded that CMS

had failed to make a prima facie case on the potential

for more than minimal harm, one of the required

elements necessary to show a lack of substantial

compliance. (App. 158) All of the remaining enforce-

ment remedies imposed by CMS were set aside. Jd.

The DAB chose to dismiss all the remedies,

rather than address or remand the remaining allega-

tions to the ALJ for a determination. It did so, in part,

because all were at a level of seriousness such that

CMS would not have been required to impose any

remedy if they were the only findings CMS had made

in the first instance. (App. 174-176) It also found that

CMS had not continued to pursue those deficiencies

beyond the ALJ level. CMS’s motion for a rehearing

on this issue was denied.

Park Manor then applied for attorneys fees and

costs under the Equal Access to Justice Act (EAJA),

basing its application on both 5 U.S.C. §§504(a)(1)

and (4). In responding to that motion, CMS did not

present any evidence in support of either the facts or

the legal theories for the 21 deficiencies which it

had alleged and which were either dismissed in IDR

or which it had elected not to pursue. It contended

only that it was entitled to reasonably rely on the

allegations made in the SODs. The ALJ denied the

fee applications in their entirety without addressing

these 21 deficiencies.

The DAB partially reversed the ALJ’s complete

denial of fees but concluded that, with the exception

of one VV cite and its attendant remedies (the VV cite

dismissed on summary disposition), the position of

CMS was substantially justified. (App. 11) In doing

so, it adopted CMS’s arguments that its position was

substantially justified if there were some deficiencies

sufficient to support a remedy that were reasonably

supported by the facts and law, regardless of whether

the remainder were not. The DAB also held CMS was

entitled to rely upon the allegations in the SODs

themselves and no further evidence of reasonableness

was necessary.

In determining that CMS’s position was sub-

stantially justified with respect to the physician

notification deficiency which it had previously dis-

missed, the DAB concluded that CMS was justified

in relying on the allegations in the SOD, even

though at the hearing it provided no evidence sup-

porting many of these factual allegations. (App. 59-

63) (“CMS had a reasonable basis in fact for its

initial determination, relying in part on these find-

ings in the SOD. .. .”) (App. 59)

The DAB concluded that Park Manor was not

entitled to a fee award under §504(a)(4) because

“CMS did not obtain any part of its initial demand,”

and the provisions of §504(a)(4) were unavailable to

provide relief to prevailing parties. (App. 126) After

directing Park Manor to allocate its fees between the

claim found not to be substantially justified and the

other claims, it awarded Park Manor a small portion

of the fees which it had originally sought under

§504(a)(1). (App. 156)

On a petition for review, the Seventh Circuit

Court of Appeals affirmed the decision of the DAB. It

concluded that CMS had no obligation to demonstrate

that its initial positions in approving the SODs and

imposing the remedies had a reasonable basis in fact

and law. It reasoned that requiring CMS to verify the

facts and legal theories upon which the SODs were

based prior to approving them and imposing remedies

would undermine the efficiency of the survey proce-

dures and “retard the correction of the deficiencies

found by the state agency.” (App. 6)

That court also concluded that allowing prevail-

ing litigants to recover under the excessive demand

theory of §504(a)(4) was contrary to the purpose of

EAJA because it would undermine the substantial

justification analysis embodied in §504(a)(1). (App. 7-

8) Embodied in that holding was the conclusion that,

unless barred from applying, a prevailing party would

automatically qualify for fees under §504(a)(4) be-

cause the amount of the agency’s demand that it

would have recovered would be zero.

REASONS FOR GRANTING THE PETITION

This Court has twice before had occasion to

construe the EAJA in Pierce v. Underwood, 487 U.S.

552 (1988) and Commissioner, I.N.S. v. Jean, 496 U.S.

154 (1990). In both of those cases, the Court con-

strued the EAJA provisions which are applicable to

court proceedings, 28 U.S.C. §2412(d)(1)(A), rather

than those governing administrative proceedings.

This case would provide the Court with an opportu-

nity to address those EAJA provisions which are

incorporated in the Administrative Procedure Act

(APA). It would also provide the Court with an oppor-

tunity to construe the 1996 amendments, Pub. L. No.

104-121, 110 Stat 847, 862-863, which expanded the

basis for recovery of fees to include, not only cases in

which the government’s position on th: merits was

not substantially justified, but also where the gov-

ernment seeks a penalty that is unreasonable when

compared to the final result.

EAJA is designed to provide a climate of fairness

in which federal agencies and officers will make their

decisions. 5 U.S.C. §§504(aX1) and (4) are designed to

insure that federal agencies who enforce federal

requirements will base their decisions on a reason-

able factual and legal basis and that they do not seek

unreasonable penalties in code enforcement proceed-

ings. Since government positions that are not rea-

sonably based on fact or law, or which seek excessive

penalties, are those most likely to be challenged, the

ultimate result of a fully effective EAJA would there-

fore be a reduction in the amount of litigation.

This Court should grant this petition for certio-

rari in order to address and resolve four important

questions involving the interpretation of EAJA that,

unless resolved, are likely to recur in administrative

proceedings in the future. This case squarely presents

the question of whether an administrative litigant

who prevails in an administrative enforcement pro-

ceeding should be thereby barred from recovering its

attorneys fees and costs under the excessive demand

provisions, 5 U.S.C. §504(a)(4). The Seventh Circuit’s

holding that the provisions of §504(a)(4) are unavail-

able to a prevailing party also rests on its implied

holding that eligibility for fees under §504(a)(4) is

governed exclusively by a single quantitative analysis

which compares the demand to the result. This

implied holding conflicts with the two-part test

developed in Sec’y of Labor, Mine Safety and Health

Administration (MSHA) v. L & T Fabrication &

Constr., Inc., 22 FMSHRC 509, 2000 0.S.H.D. (CCH)

732092, 2000 WL 687693 (F.M.S.H.R.C.).

This case also squarely presents the question, not

addressed in Pierce v. Underwood, supra, of whether

an agency's duty to fairly evaluate whether its actions

which lead to litigation are reasonable in law and fact

can be abrogated when the agency’s mission includes

the protection of public health or safety. Finally,

though not addressed by the circuit court, this case

presents the question left unanswered in Commis-

sioner, I.N.S. v. Jean, supra, of whether a position

that is substantially justified, in part, can serve as a

basis for a fee award under 5 U.S.C. §504(a\1).

THE CIRCUIT COURT'S INTERPRETA-

TION OF 5 U.S.C. §504(a)(4) WARRANTS

REVIEW BY THIS COURT.

The excessive demand provisions of EAJA were

adopted as part of the 1996 amendments, and have

never before been construed or addressed by this

Court. The excessive demand provisions of EAJA

included in the APA are contained in 5 U.S.C.

§504(a)(4). They provide that, in a proceeding in

which an agency seeks to enforce a statute or admin-

istrative rule and the penalty it seeks to impose was

unreasonable when compared to the result, the target

of the proceeding can recover the attorneys fees asso-

ciated with defending against the excessive penalty.

This case presents two distinct issues concerning

the interpretation of 5 U.S.C. §504(a)(4) that are

worthy of this Court’s review. First, is a party who

prevails in the enforcement proceeding foreclosed

from relief under §504(a)(4) and limited to relief

under §504(a)(1) [the substantial justification stan-

dard], regardless of whether the penalties sought to

be imposed would otherwise be considered excessive?

Second, what is the proper test for the agencies and

the courts to apply in determining whether the penal-

ties sought by the agency were, in fact, excessive?

A. Whether Prevailing Litigants Should

Be Barred From Recovering Under 5

U.S.C. §504(a)(4) Is An Important Issue

Of Federal Law That Should Be Set-

tled By This Court.

The Seventh Circuit held that the reach of 5

U.S.C. §504(a)(4) is confined “to the case in which the

government prevails but the relief it obtains is mea-

ger in comparison to the relief it had sought.” (App. 7)

It based this conclusion upon a belief that allowing

prevailing litigants to get a second bite at the same

apple would undercut the “substantially justified”

standard set out in 5 U.S.C. §504(a)\(1). Id. This

holding was grounded on policy considerations, rather

than upon the language of the statute itself. If al-

lowed to stand without review, such a holding could

result in a substantial narrowing of the scope of

§504(a)(4).

The primary guide in construing a statute or rule

is normally its plain language. “[S]tatutory interpre-

tation begins with the language of the statute itself.”

Pennsylvania Dep't of Public Welfare v. Davenport,

495 U.S. 552, 557-58 (1990) and Mobil Oil Explora-

tion & Producing Southeast, Inc. v. United Distribu-

tion, 498 U.S. 211, 223 (1991). Neither 5 U.S.C.

$504(a)(4) nor 45 C.F.R. §13.5(b), the rule which

applies it to DAB cases, contain any language which

would limit their reach to non-prevailing parties.

Section 504(a)(4) states that:

If, in an adversary adjudication arising from

an agency action to enforce a party’s compli-

ance with a statutory or regulatory require-

ment, the demand by the agency is

substantially in excess of the decision of the

adjudicative officer and is unreasonable

when compared with such decision, under

the facts and circumstances of the case, the

adjudicative officer shall award to the party

the fees and other expenses related to de-

fending against the excessive demand. ...

(Emphasis added.)

In addition, §§504(a)(1) and (a)(4) appear to

direct themselves to different potential administra-

tive abuses. Section (a)(1) addresses agency positions

that are not substantially justified. Section (a4)

addresses demands for penalties in code enforcement

actions that are excessive. These two scenarios are

not necessarily mutually exclusive. Agencies can, and

often do, litigate cases in which they take positions

that are both not substantially justified and seek

penalties that are unreasonable and excessive. Ab-

sent the Seventh Circuit’s policy concerns, subsec-

tions (a)(1) and (a)(4), on their face, would appear to

allow a successful litigant to pursue either or both

theories in an appropriate case.

Section 504(a)(4) does not have the significant

history of interpretation by the courts that §504(a)(1)

enjoys. The only other circuit court decision dealing

with the excessive demand provisions of the EAJA,

American Wrecking Corp. v. Sec’y of Labor, 364 F.3d

321 (D.C. Cir. 2004), interpreted the language of 28

U.S.C. §2412(d)(1)(D), not 5 U.S.C. §504(a)(4).

Though the court below relied on American

Wrecking Corp. and the two decisions are not incon-

sistent, an analysis of the existing legal authority on

which the American Wrecking Corp. court relied

shows that its analysis of the issue was not extensive.

By the point in its analysis where the American

Wrecking Corp. court was deciding whether to apply

§2412(d)(1D), it had already approved an award of

fees based on the lack of substantial justification for

the government’s position. Jd. at 327-328. The circuit

court then went on to conclude that the excessive

demand provision did not permit the recovery of a

larger award than the litigant was entitled to under

the substantial justification standard. /d.

This statement in American Wrecking Corp.,

which appears in the decision almost as an after-

thought, is simply stated in terms of the court’s

inability to “imagine Congress to have intended” such

a result, id. at 328, followed by citation to U.S. v. One

1997 Toyota Land Cruiser, 248 F.3d 899, 904 (9th Cir.

2001) and Sec’y of Labor v. Wolkow Braker Roofing

Corp., 19 O.S.H. Cas. (BNA) 1267, 2000 O.S.H.D.

(CCH) 132199, 2000 WL 1466087. Neither of these

_ two decisions cited as authority in American Wrecking

Corp., however, adopted the proposition for which the

American Wrecking Corp. court cited them.

In Toyota Land Cruiser, the issue was whether

fees under 28 U.S.C. §2412(d)\1)(D) could be awarded

where the case had settled prior to judgment. The

issue of whether a party could recover fees based on

an excessive demand theory when the government

did not obtain any relief was not in the case. In

concluding that the claimant was entitled to fees, the

Ninth Circuit Court merely acknowledged that

“(d1)(D) awards fees to parties against whom the

United States obtains a judgment, with no exception

for substantial justification.” 248 F.3d at 904. The

court did not conclude, because it was not called upon

to conclude, that fees were not obtainable on an

excessive demand theory where the government had

been totally unsuccessful on the merits.

Wolkow can be fairly construed to hold that being

a prevailing party is not a bar to recovery under 5

U.S.C. §504(a)(4). After a review of the legislative

history, Wolkow concluded that “the test for attorney

fees under 504(a)(4) requires a showing that the

demand by the Agency taken as a whole was unrea-

sonable in relation to the final outcome taken as a

whole without regard as to which litigant was the

prevailing party.” Sec’y of Labor v. Wolkow Braker

Roofing Corp., supra, at 5. (Emphasis in original and

added.)

The precedent from which the American Wreck-

ing Corp. holding is derived is therefore less than

clear and compelling. If anything, these cases demon-

strate that the lower courts and agencies are strug-

gling to come to grips with a relatively new addition

to a statute which has yet to be definitively construed

by this Court. A decision on this issue by this Court

would therefore provide needed guidance to the lower

courts and administrative agencies forced to address

attorneys fee requests under the 1996 amendments.

Accepting review would also allow this Court to

fully explore the policy considerations upon which the

Seventh Circuit’s decision rests. Those considera-

tions, while stated, were neither fully analyzed nor

based on fully accurate assumptions. The circuit

court’s “second bite at the same apple” analogy (App.

7), for example, is not a totally accurate portrayal of

the relief available to a prevailing litigant under

§504(a)(4). To the extent that §504(aX4) may provide

a prevailing party with a second bite at all, it would

usually be a bite of a smaller, rather than the same,

apple. While §504(a)(1) provides for the recovery of all

reasonable fees incurred, §(a)(4) only provides for a

recovery of fees “related to defending against the

excessive demand.”

The circuit court also reasoned that the purpose

of §504(a\(4) is “parallel ... to Rule [FRCP] 68”

because it “penalizes the greedy winning plaintiff but

is inapplicable if the defendant wins.” (App. 7-8) In

support of this analogy, the court cited this Court’s

decision in Delta Air Lines, Inc. v. August, 450 U.S.

346 (1981). In effect, the circuit court extended Delta

Air Lines and the rationale underlying Rule 68 into

an administrative proceeding in which the fee request

is not based upon a refused settlement offer.

The holding in Delta Air Lines was based upon

this Court’s reading of the clear language of Rule 68,

which limited its scope to a situation in which the

defendant had lost on the merits. (“[T]he words

‘judgment ... obtained by the offeree’ — rather than

words like ‘any judgment’... confines its effect to” a

case in which the offeror lost on the merits. 450 U.S.

at 351. Section 504(a)(4), in contrast, uses the more

general term “decision,” which does not connote

either a win or a loss for the moving party. Whether

this Court’s holding in Delta Air Lines, which was

based on the clear language of a procedural rule

designed to encourage settlement, should be extended

to govern the construction of a statute which is de-

signed to encourage parties to vindicate their rights,

and which contains language much less suggestive of

a similar result, is an issue that should best be re-

solved by this Court.

Accepting review would also allow this Court to

address a policy concern that the Seventh Circuit did

not address in its opinion. Should an agency be liable

under §504(a)(4), where it takes a legally and factu-

ally correct position, but makes an excessive demand

for a remedy, but not be so liable where it made that

same excessive demand, and based it on a position

that was legally and/or factually incorrect (but not so

incorrect as to not be substantially justified)? A “yes”

answer to this question is, in fact, one of the practical

effects of the Seventh Circuit’s construction of 5

U.S.C. §504(a)4).

Given the absence of any statutory language

which appears to limit the scope of §504(a)(4) in the

manner suggested by the Seventh Circuit, such a

substantial narrowing of a remedial statute for policy

reasons should only be done after careful review by

this Court, if at all. This Court should therefore grant

the petition for certiorari to determine if a potential

avenue of relief under §(a)(4) does exist for prevailing

parties.

B. The Decision Of The Seventh Circuit Is

Based On A Standard For Determining

When A Demand Is Excessive That Does

Not Represent The Only Reasonable

Construction Of 5 U.S.C. §504(a)(4).

In reaching its conclusion that allowing fee

recoveries under §504(a)(4) would undercut the

“substantially justified” standard of §(a)(1), the

Seventh Circuit also necessarily concluded that,

absent such a holding, losing on the merits would

automatically trigger a finding that any demand for

relief was substantially in excess of the decision and

unreasonable, because the agency would have recov-

ered no relief at all. (App. 7-8) The Seventh Circuit

therefore, in effect, held that fee awards under §(a)(4)

are governed by a single quantitative test in which

the final result is mathematically compared to the

demand.

While not in conflict with any other circuit court

decisions on this point, this holding is in apparent

conflict with another published, and plausible, inter-

pretation of §(a)(4). Sec’y of Labor, Mine Safety and

Health Administration (MSHA) v. L & T Fabrication

& Constr., Inc., supra. The two-part test adopted by

MSHRC is also traceable to the language of

§504(a)(4), which indicates that fees are recoverable

when the demand was “unreasonable when compared

with such decision ... under the facts and circum-

stances of the case... .” 22 FMSHRC at 513. (Empha-

sis in original.)

In L & T Fabrication & Constr., Inc., the Federal

Mine Safety and Health Review Commission, after a

careful analysis of the statutory language and legisla-

tive history of §504(a)(4), concluded that the 1996

amendments to EAJA “set forth a two-part test for

determining whether fees should be awarded.” Jd. at

514. The first part of the test is a purely quantitative

analysis — a mathematical comparison of the results

with the demand. The second part of the test, how-

ever, is qualitative. It consists of an individual factual

analysis to determine if the administrative decision-

maker acted reasonably under the circumstances in

setting the penalty to be sought.

While the L & T two-part test might make recov-

ery more difficult for some litigants, it also directly

undercuts the entire premise upon which the Seventh

Circuit concluded that it was necessary to limit the

availability of §504(a)(4) to non-prevailing litigants.

For, if a win on the merits does not automatically

translate to a finding that any penalty that was

sought was excessive, the substantial justification

analysis under §504(a)(1) would not be undermined

by allowing prevailing parties to seek relief under it,

as the Seventh Circuit feared.

The Seventh Circuit, however, undertook no

analysis to determine what the actual standard of

recovery under §504(a\4) is. It simply assumed that

any litigant who won on the merits would automati-

cally qualify for a fee award under §(a)(4) unless they

were disqualified at the outset.’

This Court should grant the petition for certiorari

because the circuit court’s decision and reasoning

below could lead to the adoption by the courts of the

single quantitative test under 5 U.S.C. §504(a)(4), @n

preference to the two-part test, without a thorough

appellate court analysis of the two alternatives.

* The circuit court decision suggests that Park Manor had

argued for the one-part test. In fact, Park Manor had argued in

its reply brief that

while §(aX4) does not provide for a fee award ‘based

solely on the absolute disparity between the initial

demand and the outcome ... ,’ as DAB concluded in

finding it inapplicable ... the disparity between the

final result and the initial demand is one major factor

the decision maker must consider in determining

whether a fee award is appropriate.

II. THE HOLDING THAT AN AGENCY WHICH

ENFORCES PUBLIC HEALTH OR SAFETY

REQUIREMENTS CAN BE RELIEVED OF

ITS OBLIGATION TO PROVE THAT ITS

PRE-LITIGATION POSITION WAS SUB-

STANTIALLY JUSTIFIED WARRANTS RE-

VIEW.

In Pierce v. Underwood, 487 U.S. 552 (1988), this

Court determined that the standard of “substantially

justified” as set forth in EAJA requires that the

position of the agency must be “justified to a degree

that would satisfy a reasonable person.” 487 U.S. at

553. The Court likened this standard to the “reason-

able basis both in law and fact” standard which had

been adopted by the lower court in that case. Id.

Substantially justified means more than just not

frivolous. Pierce v. Underwood, supra, Prod. & Maint.

Employees’ Local 504 v. Roadmaster Corp., 954 F.2d

1397, 1404 (7th Cir. 1992); and Dougherty v. Lehman,

711 F.2d 555, 563 (3rd Cir. 1983).

Under the language of EAJA, the agency’s “posi-

tion” encompasses both its pre-litigation actions

which prompted the litigation and the positions it

takes after the litigation has commenced. (“‘[Plosition

of the agency’ means, in addition to the position taken

by the agency in the adversary adjudication, the

action or failure to act by the agency upon which the

adversary adjudication is based;....”) 5 U.S.C.

§504(b)(1)(E).

Both before and since Pierce v. Underwood was

decided, courts have held that, to avoid a fee award

under 5 U.S.C. §504(a)(1), both the agency’s litigation

positions and its actions leading up to the litigation

must be substantially justified. U.S. v. Hallmark

Constr. Co., 200 F.3d 1076, 1081 (7th Cir. 2000); KMS

Fusion, Inc. v. U.S., 39 Fed. Cl. 593, 597 (1997); Fe.

Vollmer Co., Inc. v. Magaw, 102 F.3d 591, 595-596

(D.C. Cir. 1996); Marcus v. Shalala, 17 F.3d 1033,

1036 (7th Cir. 1994); and, lowa Express Distribution,

Inc. v. N.L.R.B., 739 F.2d 1305, 1309 (8th Cir. 1984). A

prevailing party may recover its fees and expenses

under EAJA “where the government’s prelitigation

conduct was not substantially justified even though

its litigating position may have been substantially

justified and vice versa.” Marcus, 17 F.3d at 1036 and

Hallmark, 200 F.3d at 1080-81.

Once a prevailing party moves for fees under

EAJA, “the government bears the burden of proving

that its position was substantially justified.” Marcus

v. Shalala, supra; KMS Fusion, Inc. v. U.S., supra;

Roanoke River Basin Ass'n v. Hudson, 991 F.2d 132,

138-139 (4th Cir. 1993); Donovan v. Dialamerica

Marketing, Inc., 757 F.2d 1376, 1389 (3rd Cir. 1985);

Enerhaul, Inc. v. N.L.R.B., 710 F.2d 748, 750 (11th

Cir. 1983); and, EuroPlast, Lid. v. N.L.R.B., 33 F.3d

16, 17 (7th Cir. 1994). (“‘[Tlo satisfy its burden the

government must demonstrate (1) a reasonable basis

in truth for the facts alleged; (2) a reasonable basis in

law for the theory propounded; and (3) a reasonable

connection between the facts alleged and the legal

theory advanced.’”) Phil Smidt & Son, Inc. v.

N.L.R.B., 810 F.2d 638, 642 (7th Cir. 1987).

Because the government has the burden of proof

on substantial justification, CMS’s failure to provide

any factual or legal justification for the bulk of the

deficiencies alleged and remedies imposed as part of

its pre-litigation position would have been conclusive

in the absence of the construction of the EAJA by the

Seventh Circuit. Pettyjohn v. Chater, 888 F. Supp.

1065, 1067 (D.C. Colo. 1995) and Baldi Bros. Con-

structors v. U.S., 52 Fed. Cl. 78, 82 (2002). (“Defen-

dant remains silent on the issue of its prelitigation

conduct.... *** Defendant cannot prove that the

Government’s conduct was substantially justified

when it does not address its conduct at all.”)

In this case, the Seventh Circuit concluded that

CMS was relieved of its obligation to establish the

reasonableness of the factual allegations and legal

theories embodied in its pre-litigation position be-

cause requiring it to investigate prior to acting would

undermine the efficiency of its enforcement proce-

dures and “retard the correction of the deficiencies

found by the state agency.” (App. 6) This holding was

made without citation to any appellate court case law

and apparently based upon the court’s view that

CMS’s actions were analogous to “the interim reme-

dies available in ordinary civil litigation such as

temporary restraining orders.” /d.

This conclusion is in apparent tension with both

the language and policies embodied in 5 U.S.C. §504

and with this Court’s holding in Pierce v. Underwood,

supra. To the extent it relies on CMS’s mission of

protecting public health or safety, it is also in apparent

conflict with an earlier decision of the circuit court for

the District of Columbia in Contractor’s Sand and

Gravel, Inc. v. Federal Mine Safety and Health Re-

view Comm’n, 199 F.3d 1335, 1339 (D.C. Cir. 2000).

This Court should therefore grant certiorari in this

case to resolve these conflicts and issues.

A. The Creation Of A Separate Standard

Of Reasonableness For Agencies Which

Regulate In The Areas Of Public Health

Or Safety Should Only Be Done After A

Thorough Review By This Court.

The agency’s pre-litigation position is its “action

or failure to act ... upon which the adversary adjudi-

cation is based.” 5 U.S.C. §504(b)(1)E). CMS’s pre-

litigation position in this case consisted of the 28

alleged deficiencies it approved. It also consisted of all

the remedies which is imposed, including the

$12,400.00 CMP for the IJ, the daily CMP for the

other cites, the NATCEP suspension, and the suspen-

sion of reimbursement for new admissions. These

were the governmental actions which prompted Park

Manor’s appeal and which therefore “gave rise to

the litigation” within the meaning of 5 U.S.C.

§504(b)(1)E) and Marcus, 17 F.3d at 1036.

Twenty-one of those deficiencies supporting the

remedies were either rescinded in IDR or abandoned

by CMS after Park Manor undertook the costs of

investigation and filing an appeal. After Park Manor

prevailed in all aspects of the litigation and moved for

fees under EAJA, CMS chose not to introduce any

evidence to support any of these allegations during

the EAJA proceedings. In its answer to the fee appli-

cation, CMS contended only that it “reasonably relied

upon the findings and recommendations of the State

survey agency... .”

The state survey agency’s actions, however, are

subject to approval by CMS. They may also, in fact, be

the actions of CMS. The DAB has held in other con-

texts that a state survey agency is the “agent” of CMS

and its acts are attributable to it. Clermont Nursing

and Convalescent Ctr. v. CMS, DAB No. CR1087,

2003 WL 22326547 (HHS), at n. 10 (09/25/03) (“It]he

State agency acted as an agent of CMS in this survey

process and references to CMS may be read to include

its agent”) and Community Hosp. of Long Beach v.

CMS, DAB No. 1938 (08/18/04), 2004 WL 2102876

(HHS), pp. 1-2 (“CMS and its agents (such as state

survey agencies)... ”).

The circuit court concluded that CMS was enti-

tled to rely on the allegations in the SOD’ and had no

* The Seventh Circuit’s comment that the SOD itself

establishes a prima facie case is based upon its reading of

Harmony Court v. CMS, DAB Dec. No. 1968 (2005), Medicare

and Medicaid Guide (CCH) ¥ 120803, 2005 WL 835751. Har-

mony Court, however, did not hold that the allegations in an

SOD are always sufficient to establish a prima facie case. It held

only that they will do so where the assertions in the SOD have

not been disputed by the provider. (“‘ ... CMS may make a

prima facie showing of noncompliance based on that document if

the factual findings and allegations it contains are specific,

(Continued on following page)

duty to investigate or test the legal viability of any of

these allegations. (App. 5-6) It likened CMS’s approv-

ing these deficiencies and imposing the remedies

without any evaluation of the facts and law upon

which they may have been based to interim remedies

which are routinely available in court proceedings.

(App. 6) The exact meaning intended by this analogy

is not clear, since the issuance of a temporary re-

straining order presupposes the evaluation of the

facts and law, based on defined legal standards, by a

neutral magistrate.

This holding, that an agency is excused from

insuring that its positions are reasonably based upon

the facts and law when it determines that conducting

such an analysis prior to acting might cause the

agency's enforcement process to lose “economy” or

“retard the correction of the [alleged] deficiencies,”

is in substantial tension with Congress’ directive in

5 U.S.C. §§504(a)(1) and (b)(1)E) that an agency’s

actions must have a reasonable basis in fact and law.

This holding by the Seventh Circuit also, by

necessity, would limit any review of the government’s

“position” to a review of the position it takes after the

litigation is underway. Such a limitation would not

comport with other court decisions construing the

undisputed, and not inherently unreliable.’”) Harmony Court,

DAB Dec. No. 1968 at Westlaw 11. (Emphasis added.)

“ How forcing providers to expend resources to correct

deficiencies that do not exist furthers CMS’s goal of protecting

resident health and welfare is not explained.

requirements of EAJA. See, Jowa Express Distribu-

tion, Inc. v. N.L.R.B., supra, at 1309. (“The litigation

position approach does not address what we must

conclude is at least a significant purpose of the EAJA

~— to encourage government regulatory agencies only

to take actions that have a reasonable basis in law

and in fact.”)

In deciding that an agency was excused from

determining substantial justification prior to acting

in this type of case, the Seventh Circuit reasoned that

“lijmposing interim sanctions in advance of full

investigation is a sensible procedure with familiar

analogs in the interim remedies available in ordinary

civil litigation, such as temporary restraining orders.”

(App. 6)’ Not only has this analogy never before been

used in evaluating whether the government’s position

was substantially justified, but if adopted by the

lower courts, it has the potential to create an excep-

tion to the definition of an agency’s position in

§504(b)(1)(E) which would swallow the rule.

The EAJA is a federal statute designed, at least

in significant part, to reduce or eliminate unreason-

able government action that leads to litigation. See

Commissioner I.N.S. v. Jean, supra. “The Govern-

ment’s general interest in protecting the federal fisc

* The court did not explain its characterization of the

remedies sought by CMS as “interim remedies.” Absent a

successful appeal by Park Manor, all of the remedies, including

the CMPs, would have been enforced.

is subordinate to the specific statutory goals of en-

couraging private parties to vindicate their rights and

‘curbing excessive regulation and the unreasonable

exercise of Government authority.’” 496 U.S. at 164-

165. Since governmental actions that do not have a

reasonable basis in fact or law are those most likely

to be challenged, EAJA also serves to reduce the

volume of litigation. A construction of EAJA which

significantly limits its reach, and which is not based

upon the language of the statute, should therefore not

be adopted without a thorough analysis by this Court.

B. The Circuit Court’s Holding That CMS

Is Not Required To Investigate Prior To

Imposing Remedies Is In Apparent Con-

flict With Principles Established By A

Decision Of Another Circuit Court.

The circuit court determined that requiring CMS

to verify the accuracy of the allegations before impos-

ing remedies would “retard the correction of the

deficiencies....” This method of analysis, which

seeks to temper the requirements of the EAJA with

the perceived mission of the agency, was previously

rejected by the circuit court for the District of Colum-

bia in Contractor’s Sand and Gravel, Inc., 199 F.3d

1335, 1339 (D.C. Cir. 2000).

6 . . ° pala .

How imposing remedies for, and requiring nursing homes

to divert resources to correct, non-existent deficiencies protects

resident health or safety is not explained.

In Contractor’s Sand and Gravel, Inc., the agency

initiated an enforcement proceeding against a mine

operator for failing to properly ground equipment.

Without offering any evidence that the equipment

was not, in fact, grounded, the agency argued that the

frame grounding employed by the company was

inherently unsafe. After that position was rejected in

the litigation, the agency defended the EAJA claim,

not on the reasonableness of its factual and legal

position, but on its need to act to protect public safety.

The court rejected this argument. (“The Commission’s

determination that the Secretary’s position had a

reasonable basis in law is based entirely on an analy-

sis which examines the purpose of the regulations in

terms of the overriding objective of safety in the

mine... .”) 199 F.3d at 1340.

While CMS undoubtedly does have, as its mis-

sion, the goal of promptly remedying deficient nurs-

ing home practices, the same could be said about the

numerous other federal agencies which serve to

protect public health and safety. The implications of

the holding by the Seventh Circuit therefore go well

beyond the nursing home enforcement process.

It is at least reasonable to conclude that Con-

gress was aware of the tension between agencies’

need to sometimes act promptly, and a requirement

that they verify the legal and factual reasonableness

of its position prior to acting, when it adopted the

EAJA. In opting for the requirement of substantial

justification, Congress appears to have decided to

balance these two competing policies in favor of the

goals embodied in the EAJA. This Court should

therefore accept this case to resolve this conflict

between the two circuit court decisions.

Ill. THE DAB’S CONCLUSION, THAT AN

AGENCY’S POSITION IS SUBSTANTIALLY

JUSTIFIED IF SOME ALLEGATIONS HAVE

A REASONABLE BASIS IN FACT AND LAW

BUT THE LARGER PORTION DOES NOT,

CONFLICTS WITH DECISIONS OF OTHER

CIRCUIT COURTS.

This Court in Commissioner, I.N.S. v. Jean, 496

U.S. 154 (1990), held that in determining substantial

justification, the position of the government is to be

viewed as an inclusive whole. 496 U.S. at 158-159.

The DAB, in applying that principle, held that CMS

could pursue numerous deficiencies and remedies so

long as it could later demonstrate that one or more

deficiencies, that could arguably support the reme-

dies imposed, had a reasonable basis. “CMS’s pre-

adjudication actions can be considered reasonable for

EAJA purposes if there are some legally sufficient

grounds for the actions regardless of whether other

allegations were made that might have affected how

CMS exercised its discretion.” (Emphasis in original.)

(App. 47)

This holding was appealed to the circuit court,

but, due to that court’s holding that CMS was entitled

to rely on the allegations in the SOD, it was not

addressed. This holding by the DAB, however, is

contrary to other established circuit court precedent

construing the EAJA. See United States v. Jones, 125

F.3d 1418, 1428-1429 (11th Cir. 1997); Hanover Potato

Prod., Inc. v. Shalala, 989 F.2d 123, 131 (3rd Cir.

1993); and Alphin v. Nat'l Transp. Safety Bd., 839

F.2d 817, 822 (D.C. Cir. 1988).

In Alphin, the FAA initiated a proceeding to

suspend an inspector’s certificate. It alleged a num-

ber of code violations and, as in the present proceed-

ings, the private party had the burden of proof to

show compliance. When the FAA’s allegations were

dismissed, the inspector moved for fees. The NTSB

concluded that one of the charges, the failure to

detect a cracked crankshaft, was substantially justi-

fied and would have supported the suspension sought

and it denied fees. 839 F.2d at 821-822. In reversing

that denial, the court reasoned:

Although we agree with the Board that the

cracked crankshaft alone validated the FAA’s

decision to proceed against Alphin, we can

not condone the shotgun approach used by

the FAA. Simply because the cracked crank-

shaft, if proved, could have supported the

suspension, the FAA is not entitled to tack on

other meritless allegations. Each allegation

had to be disproved by Alphin....

Alphin at 822.

The reasoning in Alphin was reaffirmed in Air

Transp. Ass’n of Can. v. Fed. Aviation Admin., 156

F.3d 1329 (D.C. Cir. 1998). In Air Transp. Ass’n all

but one of the government’s allegations had been

found to be substantially justified. The court never-

theless found a fee award appropriate under the

EAJA:

Virtually any government action is either

grouped with other actions or is a component

of some greater action. *** If a litigant

who has successfully challenged a govern-

ment action as substantially unjustified and

achieved a complete victory in terms of the

relief prayed cannot recover EAJA fees be-

cause of this well-nigh universal grouping,

then Congress’ enactment of the EAJA be-

comes a virtual nullity.

Id. at 1332.

Since the DAB’s decision has been published, it

serves as a basis for deciding fee applications within

HHS, and may influence the analysis of such cases in

other settings. This Court should therefore grant the

petition for certiorari to resolve this conflict and

determine the standards which should apply when

some of the government’s position is substantially

justified, but an equal or larger portion is not.

CONCLUSION

For all of the above reasons, petitioner respect-

fully requests that the Supreme Court grant this

petition for certiorari to review the decision of the

Seventh Circuit Court of Appeals.

Executed on October 19, 2007.

Respectfully submitted,

ROBERT M. HESSLINK, JR.

HESSLINK Law OFFICES, S.C.

State Bar No. 1013876

Counsel of Record for Petitioner

P.O. Box 930005

Verona, WI 53593-0005

(608) 845-3775

App. 1

495 F.3d 433

United States Court of Appeals, Seventh Circuit.

PARK MANOR, LTD., Petitioner,

UNITED STATES DEPARTMENT OF HEALTH

AND HUMAN SERVICES, Respondent.

No. 06-3521.

Argued May 4, 2007.

Decided July 23, 2007.

Robert M. Hesslink, Jr. (argued), Verona, WI, for

Petitioner.

Michael O. Leavitt, Department of Health and

Human Services, Washington, DC, Donna Morris

Weinstein, Barbara F. Altman (argued), Department

of Health and Human Services, Office of the General

Counsel, Chicago, IL, Richard D. Humphrey, Office of

U.S. Attorney, Madison, WI, for Respondent.

Before POSNER, MANION, and KANNE, Circuit

Judges.

POSNER, Circuit Judge.

The petitioner, Park Manor, a nursing home, asks

us to reverse the denial by HHS’s Departmental

Appeals Board of an award of attorneys’ fees under

two provisions of the Equal Access to Justice Act, 5

U.S.C. §§ 504(a1) and (4). We have jurisdiction

because, had Park Manor lost before the Board and

sought judicial review, we would have had jurisdic-

tion of that review proceeding. 42 U.S.C. § 1320a-

Tale).

App. 2

The first subsection of section 504(a) provides

that “an agency that conducts an adversary adjudica-

tion shall award, to a prevailing party other than the

United States,” the party’s reasonable attorney’s fees

unless the government’s position was “substantially

justified.” An agency within the Department of

Health and Human Services called CMS (Centers for

Medicare & Medicaid Services) is responsible for

making sure that nursing homes that receive reim-

bursement under the Medicare program comply with

the various rules that HHS has issued for the protec-

tion of the residents of nursing homes. Fairfax Nurs-

ing Home, Inc. v. HHS, 300 F.3d 835, 836 (7th

Cir.2002); Mimiya Hospital, Inc. v. HHS, 331 F.3d

178, 179 (1st Cir.2003). To this end CMS conducts

annual “surveys” (inspections of nursing homes).

Only it doesn’t conduct the inspections itself; it has

delegated the task to state health agencies that

employ nurses, nutritionists, and other health profes-

sionals to inspect nursing homes for violations of

applicable rules. Jd. at 179. If the state agency re-

ports to CMS that it has found violations, CMS can

forthwith impose sanctions, such as civil penalties

and denial to the nursing home of reimbursement for

the expenses of new residents. 42 U.S.C § 1395i-

3(h)(2). The nursing home can challenge the sanc-

tions, as Park Manor did here, and the ruling of the

first-level decider, an administrative law judge in

HHS, is reviewable by the Departmental Appeals

Board and then by the court of appeals.

App. 3

Inspections of Park Manor conducted by the

Wisconsin health agency in 2001 yielded a 123-page

report to CMS. The agency had found 28 violations.

CMS responded by imposing temporary sanctions but

later suspended them because Park Manor was back

in compliance. By the time the case came before the

administrative law judge for a determination of the

validity of the charges and the possible imposition of

permanent sanctions, CMS had dropped all but seven

of the charges. The administrative law judge dis-

missed two more on summary judgment. He then

decided that if he sustained just one of the five re-

maining charges, this would support the sanctions

that CMS was seeking and he wouldn’t have to con-

sider the other four charges. So he picked one, sus-

tained it, and disregarded the rest. The Departmental

Appeals Board reversed the ruling sustaining the one

charge, but declined to remand the case for the ad-

ministrative law judge to rule on the other four

charges because CMS had not made an issue before

the Board of the administrative law judge’s declining

to consider them.

That would have ended the proceeding had not

Park Manor sought reimbursement under the Equal

Access to Justice Act of $289,000 in attorneys’ fees.

The administrative law judge denied the claim in its

entirety, finding that all the charges brought by CMS,

including those that CMS had dropped and those he

had dismissed on summary judgment, had been

substantially justified. The Departmental Appeals

Board affirmed except with respect to one of the two

App. 4

charges that had been dismissed on summary judg-

ment, and so awarded Park Manor a portion of the

fees it sought, but a tiny portion — less than $7,000.

Park Manor Nursing Home v. Centers for Medicare

& Medicaid Services, DAB No. A-05-37, 2005 WL

3753088 (DAB Dec. 16, 2005).

The Board ruled that it did not have to review

the merits of the 21 charges that CMS had dropped

before the hearing conducted by the administrative

law judge. It ruled that way because it rejected Park

Manor’s contention that “CMS may not reasonably

rely on state survey findings in making its remedy

decisions but must investigate — or look behind -

those findings to verify their correctness before

deciding to impose remedies.” The Board said that

“this premise is inconsistent with the enforcement

process. ... Reliance by CMS on state survey findings

is precisely what this process permits and encour-

ages. Requiring CMS to investigate every facility

before imposing remedies would frustrate the goals of

protecting residents and encouraging facilities to

correct quickly any deficiencies that jeopardize resi-

dent health and safety.” Jd.

The Board found that all but one of the charges

that CMS had ultimately pursued were substantially

justified by the information contained in the detailed

report of Wisconsin’s health agency. That finding is

supported by substantial evidence and thus binds

us. But that leaves the other 21 charges, the ones

CMS dropped before the hearing. If any of those

charges were not substantially justified, Park Manor

App. 5

is entitled to be reimbursed for the portion of its

attorney’s fees that is reasonably allocable to them.

EuroPlast, Ltd. v. NLRB, 33 F.3d 16, 16-17 (7th

Cir.1994); American Wrecking Corp. v. Secretary of

Labor, 364 F.3d 321, 325-26 (D.C.Cir.2004) (per

curiam). They were dropped early in the process

initiated by the survey, but they gave rise to interim

sanctions, and Park Manor incurred attorney’s fees in

getting the sanctions lifted and argues that CMS

should not have imposed the interim sanctions with-

out independently determining whether the report of

the state agency — the source of the findings on which

the sanctions were based — was accurate.

HHS must show that CMS was substantially

justified in taking the steps it took that led up to the

formal proceeding before the administrative law

judge, as well as in the steps it took in that proceed-

ing. 5 U.S.C. § 504(b)1)E); United States v. Hall-

mark Construction Co., 200 F.3d 1076, 1080-81 (7th

Cir.2000); Roanoke River Basin Ass’n v. Hudson, 991

F.2d 132, 138-39 (4th Cir.1993); Natural Resources

Defense Council, Inc. v. EPA, 703 F.2d 700, 706-07 (3d

Cir.1983). But CMS has delegated on-site inspection

of nursing homes to responsible state agencies, and

the delegation is not only lawful, 42 U.S.C.

§ 1395aa(a), but sensible. The states impose their

own rules on nursing homes, and it is efficient to

have the same agency investigate compliance with

both sets of rules rather than to have two inspections

of the same nursing home by two agencies. The

economy achieved by delegation would be lost if

App. 6

before acting on the results of the state agency’s

report the federal government had to duplicate the

agency’s investigation on pain of having to reimburse

the nursing home’s attorney’s fees should the state

report prove to contain critical errors. That would

also retard the correction of the deficiencies found by

the state agency, here quickly achieved when CMS

imposed interim sanctions.

Park Manor argues that the state agency’s re-

ports are one-sided, nonadversary, and therefore

unreliable. It might as well argue that the govern-

ment cannot put a person to the expense of defending

against a criminal charge on the basis of a grand

jury’s indictment, as proceedings before a grand jury

are one-sided too; an indictment establishes probable

cause to believe the defendant guilty of crime, and no

more is required to justify instituting a criminal

proceeding. The state agency’s report of violations

establishes probable cause for CMS to impose interim

sanctions and seek permanent ones, and no more

is required to establish substantial justification

under section 504(a)(1). Park Manor Nursing Home uv.

Centers for Medicare & Medicaid Services, supra;

Harmony Court v. Centers for Medicare & Medicaid

Services, DAB-No. 1968, 2005 WL 835751 (DAB Mar.

28, 2005). Imposing interim sanctions in advance of

full investigation is a sensible procedure with famil-

iar analogs in the interim remedies available in

ordinary civil litigation, such as temporary restrain-

ing orders.

App. 7

Park Manor has another arrow in its quiver.

Section 504(a)(4) provides that if “the demand [made

of a party] by the agency is substantially in excess of

the decision of the adjudicative officer and is unrea-

sonable when compared with such decision, under the

facts and circumstances of the case,” the party is

entitled to the attorneys’ fees that it reasonably

incurred in resisting the demand. Park Manor argues

that since HHS awarded the government no relief at

all, CMS’s demand for sanctions must have been

“substantially in excess of the decision” and “unrea-

sonable when compared with” the decision.

Park Manor admits that this interpretation

would undercut the “substantially justified” standard

of subsection (1) by giving litigants a second bite at

the same apple under a different (but seemingly not a

more demanding) standard. The sensible interpreta-

tion, which avoids this anomaly, confines subsection

(4) to the case in which the government prevails but

the relief it obtains is meager in comparison to the

relief it had sought. American Wrecking Corp. v.

Secretary of Labor, supra, 364 F.3d at 327-28; see

Judith E. Kramer, “Equal Access to Justice Act

Amendments of 1996: A New Avenue for Recovering

Fees from the Government,” 51 Admin. L.Rev. 363,

376 (1999). By seeking excessive relief, an agency

forces the party against which it is proceeding to

incur an excessive expense to defend itself. The

proceeding is justified, so far as the party’s liability is

concerned; it is only the relief demanded that is

unjustifiable. The parallel is to Rule 68 of the Federal

App. 8

Rules of Civil Procedure, which relieves a defendant

from having to pay the plaintiff’s costs if having

refused the defendant’s offer of judgment the plaintiff

obtains a smaller judgment. The rule penalizes the

greedy winning plaintiff but is inapplicable if the

defendant wins. See Delta Air Lines, Inc. v. August,

450 U.S. 346, 101 S.Ct. 1146, 67 L.Ed.2d 287 (1981).

Subsection (4) has a similar office, and thus has no

application to this case because the entity against

which the government was proceeding, Park Manor,

prevailed.

The petition for review is

DENIED.

App. 9

2005 WL 3753088 (H.H.S.)

Department of Health and Human Services (H.H.S.)

Departmental! Appeals Board

Appellate Division

IN THE CASE OF: PARK MANOR

NURSING HOME, PETITIONER

CENTERS FOR MEDICARE &

MEDICAID SERVICES

Civil Remedies CR1263

App. Div. Docket No. A-05-37

Decision No. 2005

December 16, 2005

DECISION ON REVIEW OF

ADMINISTRATIVE LAW JUDGE EAJA DECISION

In March and June 2001, the State of Wisconsin

conducted surveys of Park Manor Nursing Home

(Park Manor) and found noncompliance with Medi-

care participation requirements. Based on the survey

findings, the Centers for Medicare & Medicaid Ser-

vices (CMS) imposed civil money penalties and other

remedies on Park Manor. Park Manor requested a

hearing before an Administrative Law Judge (ALJ) at

the Departmental Appeals Board (Board). After the

State withdrew some of the noncompliance findings,

CMS chose to go forward based on six findings from

the March survey and one finding from the June

survey. The ALJ granted summary judgment in Park

Manor’s favor on two of these findings, overturning

App. 10

the remedies from the June survey as a result. He

conducted a hearing on the remaining five findings

and issued an initial decision in CMS’s favor, based

on one of the findings. On review, the Board reversed

the ALJ, issuing a final decision in Park Manor’s

favor. CMS did not timely pursue before the Board

the other four findings. Thus, during the proceedings,

all of the noncompliance findings were withdrawn,

not pursued, or reversed, and all of the enforcement

remedies were overturned.

Having obtained a favorable result on the merits,

Park Manor applied for attorneys’ fees and other

expenses pursuant to the Equal Access to Justice Act

(EAJA), 5 U.S.C. §504. Among other things, the

EAJA requires a federal agency to pay the reasonable

fees and other expenses incurred by an eligible “pre-

vailing party,” unless the “position of the agency” in

the underlying “adversary adjudication” was “sub-

stantially justified” or “special circumstances” make

an award unjust.

On December 28, 2004, the ALJ (Steven T. Kes-

sel) issued a decision denying Park Manor’s EAJA

application. Park Manor Nursing Home, DAB No.

CR1263 (2004) (ALJ EAJA Decision). The ALJ found

(among other things) that CMS was substantially

justified in pursuing enforcement remedies against

Park Manor. Before us now is Park Manor’s appeal of

the ALJ EAJA Decision.

As discussed below, the ALJ EAJA Decision does

not properly apply EAJA standards, is incomplete,

App. 11

and does not accurately reflect our decision on the

merits. Because of the lengthy history of this case and

other factors, we are issuing a modified decision,

rather than remanding to the ALJ. Our major conclu-

sions are:

¢ CMS had a reasonable basis for issuing the ini-

tial determinations that led to the proceedings.

¢ CMS also had a reasonable basis for pursuing a

reduced civil money penalty for the period March

22 through June 10, 2001 (even though CMS was

no longer relying on all of the findings from the

March survey). Therefore, CMS’s overall position

regarding that matter was substantially justified.

¢ By obtaining summary judgment in its favor,

Park Manor prevailed in its appeal of CMS’s ini-

tial determination imposing remedies based on

the June revisit survey — a separate matter for

EAJA purposes. CMS did not show that its over-

all position regarding that matter was substan-

tially justified, however. In particular, CMS did

not show that it had a reasonable basis for its po-

sition that remedies for the period beginning

June 11 were warranted based solely on a finding

of noncompliance that the State had withdrawn

during informal dispute resolution. Accordingly,

Park Manor is entitled to an EAJA award for the

reasonable attorneys fees and expenses it in-

curred in connection with the proceedings to re-

solve that matter (up to receipt of the summary

judgment ruling), unless “special circumstances”

make an award unjust.

App. 12

¢ None of the events that CMS alleges constitute

“special circumstances” relates to adjudication of

the remedies arising from the June revisit survey

and bars an award in connection with that mat-

ter.

¢ The ALJ correctly concluded that Park Manor

is not entitled to an award on the basis that CMS

sought excessive remedies.

Our decision below sets further procedures to

enable us to promptly determine the amount to which

Park Manor is entitled under our decision (if the

parties cannot agree on an amount within a specified

time period, as we encourage them to do). If the

parties agree on the amount, our decision will become

final on the matters decided herein. Otherwise, we

will issue a supplementary decision which, together

with this decision, will constitute final agency action

on the matters.

Case Background

This case has a long and convoluted history. We

set out here only the background required to under-

stand generally how the proceedings arose, how and

why the issues narrowed over the course of the pro-

ceedings, and what steps were taken at key stages of

the proceedings. '

' The record before the ALJ in the EAJA proceeding in-

cluded: (1) briefs submitted in support of or opposition to Park

Manor’s EAJA application, including an opening brief by Park

(Continued on following page)

App. 13

A skilled nursing facility (SNF) such as Park

Manor must comply with the requirements in 42

C.F.R. Part 483, subpart B, if it wishes to participate

in the Medicare program. Compliance is verified

through surveys performed by state survey agencies

under contract with CMS. 42 C.F.R. Part 488, subpart

E. A survey agency reports any “deficiency” (failure to

meet a participation requirement) it finds on a stan-

dard form called a “Statement of Deficiencies” (SOD).

See, e.g., CMS Ex. 1. Each deficiency cited in the SOD

is identified by an alpha-numeric “tag” relating to a

requirement in Part 483. The survey agency also

rates the seriousness of each reported deficiency by

assessing scope and severity (whether it has placed

residents in “immediate jecpardy,” caused “actual

harm,” or created only the “potential for more than

minimal harm”). Id.; see adso 42 C.F.R. § 488.404.’

Manor, a CMS “Answer’” to the application (CMS Answer), and a

reply to the CMS Answer; (2) various exhibits in support of or

opposition to the EAJA application (PM EAJA Ex. __ and CMS

EAJA Ex. ___}; and (3) the record of the merits proceeding

initiated by Park Manor to challenge CMS’s determinations. The

record of the merits proceeding includes: the parties’ exhibits

(PM Ex._ and CMS Ex. __); the hearing transcript (Tr. ___);

and the pleadings, briefs, and other related pre- and post-

hearing material listed (by number) in chronological sequence

on a December 30, 2003 document prepared by the Civil Reme-

dies Division (R. 1 to R. 92). Our record on appeal of the ALJ

EAJA Decision also includes Park Manor's opening brief (PM

Brief), a CMS response brief (CMS Response), and reply briefs

filed by both parties (PM Reply and CMS Reply).

* Noncompliance levels are denoted by letters: D, E, and F

refer to deficiencies with the potential for more than minimal

(Continued on following page)

App. 14

A SNF is subject to enforcement remedies, in-

cluding termination of its Medicare participation, if it

is not in “substantial compliance.” 42 C.FR.

§ 488.402(b),(c). A SNF is not in substantial compli-

ance if it has one or more deficiencies that create the

potential for more than minimal harm. 42 C.FR.

§ 488.301. “Noncompliance” means “any deficiency

that causes a facility to not be in substantial compli-

ance.” Id.

CMS determines whether to impose an enforce-

ment remedy on a SNF, generally after approving a

state survey agency certification of noncompliance. 42

C.F.R. §§ 488.330(a); 488.330(e)(2). In lieu of termina-

tion, CMS may impose civil money penalties (CMPs)

and other intermediate remedies to encourage the

SNF to come back into substantial compliance

promptly.’ See 42 C.F.R. §§ 488.406 and 488.408. This

scheme is based on section 1819 of the Social Security

Act (the Act), 42 U.S.C. 1395i-3.

A SNF is entitled to an ALJ hearing to contest a

federal enforcement action only if CMS issues an

harm”; G, H, and I refer to deficiencies that have caused “actual

harm” to residents; and J, K, and L identify deficiencies that

place residents in immediate jeopardy. CMS State Operations

Manual (SOM), Pub. 7, App. P, sec. V.

’ If CMS finds immediate jeopardy, CMS may impose a

CMP in the range of $3,050-$10,000 per day; for other noncom-

pliance, CMS may impose a CMP in the range of $50-$3,000 per

day. 42 C.F.R. § 488.438(ax1). ACMP accrues until the SNF has

achieved substantial compliance or its provider agreement is

terminated. 42 C.F.R. § 488.454(a).

App. 15

appealable “initial determination.” 42 C.FR.

§§ 498.3(b), 498.5, 488.330(e3). The definition of

“initial determination” includes a finding of noncom-

pliance that results in the imposition of a remedy

specified in section 488.406, a finding of substandard

quality of care that results in the loss of approval of a

nurse aide training program, and the level of non-

compliance found by CMS if a successful challenge on

this issue would affect the range of CMP amounts

that CMS may collect. 42 C.F.R. § 498.3(b)(13), (14),

and (16).

A hearing on a CMP typically requires an ALJ to

make findings on two issues: first, whether the SNF

was, as alleged by CMS, not in substantial compli-

ance with participation requirements during the

period for which CMS imposed the CMP; and second,

whether the amount of the CMP is reasonable in view

of the seriousness of the noncompliance, the SNF’s

compliance history, and other factors. See, e.g., 42

C.F.R. § 488.438."

On March 22, 2001, the Wisconsin Department of

Health and Family Services (WDHFS) completed a

standard survey and extended survey of Park Manor

(the March survey). CMS Ex. 1, at 1; CMS Ex. 3, at 1.

* Contrary to what Park Manor suggests, however, it did

not have a right to review of CMS’s exercise of discretion to

impose remedies, rather than giving Park Manor an opportunity

to correct them, nor did Park Manor’s right to appeal arise

before CMS issued its initial determinations. 42 C.F.R.

$$ 488.438, 498.3.

App. 16

As initially issued, the SOD for the March survey

contained noncompliance findings under 20 tags, two

of which we identify at this point. CMS Ex. 1, at 1.

First, surveyors found that Park Manor had failed to

consult immediately with a resident’s physician about

a “significant change” in the resident’s status (tag

F157). Id. at 1-9. Second, surveyors found that Park

Manor had not ensured that a resident received

adequate supervision to prevent accidents (tag F324).

Id. at 86. The surveyors also found that for two days,

March 20 and 21, the deficiency under tag F324

placed residents in immediate jeopardy and therefore

also constituted “substandard quality of care.” Id. at

1: see also CMS Ex. 8, at 2.

In April 2001, before CMS made any determina-

tion based on the March survey, Park Manor filed two

hearing requests. R. 1; R. 3. The first was dismissed

as premature. R. 2; R. 37. The second responded to a

WDHFS notice advising Park Manor that, due to the

substandard quality of care finding, it would no

longer be allowed to offer or conduct a nurse aide

training and competency evaluation program (NAT-

CEP).

* “Substandard quality of care” means one or more deficien-

cies (under 42 C.F-R. §§ 483.13, 483.15, or 483.25) that consti-

tute either: immediate jeopardy to resident health or safety; a

pattern of or widespread actual harm that is not immediate

jeopardy; or a widespread potential for more than minimal harm

(but less than immediate jeopardy, with no actual harm). 42

C.F.R. § 488.301.

App. 17

On May 4, 2001, CMS issued a “Notice of Imposi-

tion of Remedies.” CMS Ex. 2. This notice informed

Park Manor that CMS was imposing the following

remedies based on the March survey: (1) a CMP of

$6,200 per day for two days of immediate jeopardy;

and (2) a CMP of $250 per day, which would accrue

from March 22, 2001 until the facility achieved sub-

stantial compliance. Jd. This notice also indicated

that the alleged noncompliance with section 483.25

(tag F324) constituted “substandard quality of care,”

and that Park Manor was therefore prohibited from

offering a NATCEP for two years. Jd. at 1. Park

Manor then filed its third hearing request. R. 12.

In early May 2001, WDHFS held an informal

dispute resolution (IDR) conference regarding the

March survey findings.” CMS Ex. 5, at 2. Park Manor

submitted extensive documentation to WDHFS in

support of its presentation at this conference.

On June 11, 2001, WDHFS completed a revisit

survey (June revisit survey) of Park Manor and found

continued noncompliance. CMS Ex. 6. The SOD for the

June revisit survey cited the facility for deficiencies

* States must offer facilities an opportunity to informally

dispute adverse findings in a SOD. 42 C.FR. § 488.331(aX1).

The pendency of IDR does not toll or delay the effective date of

enforcement action by CMS. 42 C.FR. § 488.331(bX2). However,

“ti]f a provider is subsequently successful, during the {IDR}

process, at demonstrating that deficiencies should not have been

cited, the deficiencies are removed from the [SOD] and any

enforcement actions imposed solely as a result of those cited

deficiencies are rescinded.” 42 C.F.R. § 488.331(c).

App. 18

under six tags. Jd. (This included a finding under tag

F157 involving a different resident than the finding

under that tag from the March survey.) Park Manor

filed a fourth hearing request. R. 18.

On June 15 and 19, 2001, CMS and Park Manor

filed Reports of Readiness in the pending appeals. R.

15-R. 17. These reports, like similar reports submit-

ted in September, contained general assertions, but

no detailed arguments. Id.; R. 30, R. 31, R. 33.

On June 21, 2001, WDHFS informed Park Manor

that, as a result of IDR, WDHFS had amended the

March survey findings under tag F324, placed the

amended findings under tag F309, and reduced the

noncompliance level from J (immediate jeopardy) to D

(potential for more than minimal harm). CMS Ex. 7,

at 1. WDHFS also agreed during IDR to withdraw or

amend other March survey findings. Id.; see also R.

18, Att. 1. WDHFS then issued an amended SOD for

the March survey, with 15 noncompliance findings

(including one under tag F157). CMS Ex. 4; CMS Ex.

5, at 2.

On July 3, 2001, CMS issued a Notice of Imposi-

tion of Remedies based on the June revisit survey.

CMS Ex. 7. This notice advised Park Manor that

CMS was continuing the $250 per day CMP previ-

ously imposed, and imposing a denial of payment for

new admissions (DPNA) starting July 15, 2001. Jd. at 2.

The notice also said that CMS had accepted WDHFS’s

recommendation to rescind the $6,200 per day CMP

previously imposed for two days of immediate jeopardy.

App. 19

Id. Park Manor then filed its fifth hearing request. R.

20 and R. 25.

On August 2, 2001, WDHFS notified Park Manor

that, as a result of IDR, it was rescinding two find-

ings from the June revisit survey — tags F157 and

F281 — and amending one other finding from that

survey. PM Exs. 34 and 66.

On September 20, 2001, CMS notified Park

Manor by letter that it was back in substantial com-

pliance and that all remedies had been discontinued

as of July 24, 2001 (the date WDHFS conducted a

second revisit survey). CMS Ex. 8. CMS also said that

the IDR decision to withdraw the immediate jeopardy

finding (from the March survey) had effectively

overturned the substandard quality of care finding.

Id. at 2.’

Meanwhile, the March survey had led WDHFS to

levy fines against Park Manor for allegedly violating

State nursing home requirements that are similar

but not identical to the federal requirements. See PM

Ex. 54. Park Manor contested these fines, and the

resulting proceeding included a 13-day hearing before

” At this point, the following were at issue: (1) 15 noncom-

pliance findings from the March survey, resulting in the $250

per day CMP effective March 22, 2001; and (2) six noncompli-

ance findings from the June revisit survey, resulting in continu-

ing the $250 per day CMP through July 23, 2001 and a DPNA

for the period July 15 through July 23, 2001. The total CMP was

$31,000 ($250 per day for the 124 days from March 22 to July

23, 2001).

App. 20

a State ALJ. Jd. at 2. In March 2002, while the fed-

eral ALJ proceeding was pending, the State ALJ

issued a decision overturning the fines. Jd. Shortly

afterward, CMS reviewed the State ALJ decision and

the evidence developed in the State proceeding. CMS

Answer at 16. Based in part on that review, CMS

decided not to pursue some of the related federal

findings. CMS Answer at 16-17.

The federal ALJ did not issue orders setting

deadlines for exchanging and submitting proposed

exhibits, written testimony, and pre-hearing briefs

until February and May 2002. R. 37; R. 43. CMS

submitted proposed exhibits (including written direct

testimony), a witness list, and a pre-hearing brief on

July 15, 2002. The pre-hearing brief advised the ALJ

and Park Manor that CMS had elected to go forward

on only six of the March survey findings (tags F157,

F279, F309, F332, F444, and F496) and on only one

finding from the June revisit survey (tag F157). R. 44

(Brief at 3, n.3). Accordingly, CMS reduced the $250

CMP to $150 per day for the period March 22 through

June 10, 2001, and $100 per day for the period June

11 through July 23, 2001. Jd.

On August 9, 2002, Park Manor moved for sum-

mary judgment on all of the findings and remedies at

issue in the proceedings. R. 47. Among other things,

Park Manor asserted that the sole remaining non-

compliance finding from the June revisit survey — the

finding under tag F157 — had been rescinded during

IDR and thus could not be used to support the reme-

dies imposed for the period June 11 through July 23,

App. 21

2001. Jd. at 11-13, 39-43. While the motion was

pending, Park Manor filed its exhibits, written direct

testimony, and list of proposed witnesses. R. 50. Some

of the testimony addressed the findings under tag

F157 in the original SOD from the June revisit sur-

vey. See, e.g., P. Ex. 61, at 23; P. Ex. 68, at 32.

On October 8, 2002, the ALJ ruled that Park

Manor was entitled to summary judgment concerning

tag F157 because CMS had not taken the steps

necessary to overrule the IDR decision. R. 60, at 3-6.

The ALJ also ruled that no CMP or other remedy

could be imposed for the period June 11 through July

23, 2001 because CMS had abandoned its reliance on

all findings from the June revisit survey except for

tag F157. Id. at 6. As a result, there was, as of Octo-

ber 8, 2002, no longer an issue about remedies for the

period June 11 through July 23, 2001.

The ALJ also granted summary judgment to

Park Manor with respect to tag F444 from the March

survey, but denied summary judgment with respect to

the other five remaining tags from that survey (F157,

F279, F309, F332, and F496). R. 60, at 8. The ALJ

held a hearing in February 2003 to permit cross-

examination regarding these five tags. The parties

then filed post-hearing briefs setting out their argu-

ments regarding each tag. R. 83, R. 86, R. 87-88. CMS

argued that Park Manor was not in substantial

compliance with the requirements associated with the

five remaining tags, and that noncompliance with any

one of these requirements was sufficient to support a

$150 per day CMP.

App. 22

On September 30, 2003, the ALJ issued a deci-

sion upholding the $150 per day CMP for the period

March 22 through June 10, 2001. Park Manor Nurs-

ing Home, DAB CR1090 (2003) (ALJ Merits Deci-

sion). In that decision, the ALJ made findings on only

one of the five remaining tags — tag F157. Regarding

that tag, the ALJ found that Park Manor was not in

substantial compliance with 42 C.F.R. § 483.10(b)(11)

because it had failed to consult with a physician

immediately about a change in Resident 20’s condi-

tion. The ALJ also found that the amount of the CMP

was reasonable based on his findings regarding tag

F157, and therefore he did not need to address issues

regarding the other four tags.

Park Manor appealed the ALJ’s decision to the

Board. On June 17, 2004, the Board reversed the

ALJ’s finding of noncompliance with section

483.10(b)(11) and set aside the $150 per day CMP.

Park Manor Nursing Home, DAB No. 1926 (2004).

The Board did not remand the case to the ALJ to

address the remaining noncompliance findings be-

cause CMS had not pursued those findings before the

Board and because further proceedings would not

serve the remedial purpose of the regulations. CMS

asked the Board to reconsider its decision, and the

Board denied the request.

Then, on July 14, 2004, Park Manor filed an

EAJA application seeking reimbursement of about

$290,000 in attorneys fees and other expenses. Park

Manor requested an award under an EAJA provision

that requires a federal agency to pay the reasonable

App. 23

fees and other expenses of an eligible “prevailing

party” in an “adversary adjudication” conducted by

the agency unless the “position of the agency” in the

adjudication was “substantially justified” or “special

circumstances make an award unjust.” Park Manor

also contended that it was entitled to an award under

an EAJA provision that authorizes an award when an

agency makes an “excessive demand” in enforcing the

party’s compliance with a statutory or regulatory

requirement.

The ALJ denied the EAJA application in its

entirety. He found that although Park Manor was a

“prevailing party” and an eligible entity under the

EAJA, Park Manor was not entitled to an award

because CMS was substantially justified in determin-

ing to impose remedies, specifically, in: (1) alleging

that Park Manor failed to comply with the require-

ments of section 483.10(b)(11) (tag F157); (2) alleging

four additional deficiencies (tags F279, F309, F332,

and F496) that might, in themselves, have served as

a basis for imposing remedies; and (3) determining to

impose a $150 per day CMP. The ALJ also rejected

Park Manor’s request for an award on the basis that

CMS had made an excessive demand, finding that

this basis does not apply when the party opposing the

federal agency “prevails entirely” in the underlying

proceeding, as Park Manor did. /d. at 16-19. The ALJ

noted that, in any event, the $150 per day CMP was

not excessive. /d. at 18.

Park Manor now objects to most of the ALJ’s key

findings and conclusions, asserting that the ALJ

App. 24

failed to apply, or misapplied, relevant legal stan-

dards and that CMS’s pursuit or defense of enforce-

ment remedies was unjustified at every stage of the

merits proceeding. In response to Park Manor’s

appeal, CMS also takes exception to several aspects

of the ALJ’s decision.

Discussion

We begin our discussion by briefly addressing, in

section A, the parties’ dispute about the appropriate

standard for our review.

Next, in section B, we address whether the ALJ

correctly determined that Park Manor was not enti-

tled to an award as a prevailing party, as follows:

° In section B.1, we set out the prerequisites for

awarding a “prevailing party” fees and expenses,

with particular emphasis on the legal standard

that must be applied in determining whether the

agency’s “position” is “substantially justified.”

e In section B.2, we explain why we conclude

that the ALJ’s substantial justification analysis is

not adequate and why we consider it appropriate

to issue a modified and supplemented decision,

rather than remanding this case to the ALJ.

e In section B.3, we explain why we find that

CMS had a reasonable basis for issuing the ini-

tial determinations that were the basis for the

merits proceedings, even though CMS revised,

withdrew, or chose not to rely on some of the sur-

vey findings during the proceedings.

App. 25

¢ In section B.4, we explain why we find that

CMS had a reasonable basis for continuing to

pursue six findings from the March survey in the

proceeding and was substantially justified in its

overall position that a CMP was warranted based

on noncompliance findings from the March sur-

vey.

¢ In section B.5, we explain why we find that

CMS did not have a reasonable basis for seeking

remedies based on the finding under tag F157

that WDHFS had withdrawn during IDR, that

CMS’s overall position seeking remedies based on

the June revisit survey was not substantially jus-

tified, and that Park Manor is entitled to an

award for the reasonable fees and expenses it in-

curred to overturn the remedies from the June

revisit survey because there are no special cir-

cumstances that make such an award unjust.

In section C, we explain why we uphold the ALJ’s

conclusion that Park Manor is not entitled to an

award on the basis that CMS made an “excessive

demand.”

In section D, we explain why we uphold the ALJ’s

ruling denying Park Manor’s request to withhold

certain financial records from public disclosure.

Finally, in section E, we establish a schedule for

further submissions on the amount of the allowable

award.

App. 26

A. The Board’s standard of review in EAJA cases

Park Manor argues that a substantial justifica-

tion determination is a legal conclusion that the

Board should review de novo. PM Reply at 10-12.

CMS, on the other hand, asserts that the issues of

whether an agency position is substantially justified,

or whether “special circumstances” make an EAJA

award unjust, are questions of fact whose resolution

by the ALJ should be reviewed under a “substantial

evidence” standard. CMS Reply at 3-8.

The Department of Health and Human Services

(HHS) has issued regulations to implement the

EAJA. 45 C.F.R. Part 13. These regulations were last

amended in January 2004. 69 Fed. Reg. 2843 (Jan.

21, 2004). The January 2004 amendments became

effective on February 20, 2004, before Park Manor

filed its EAJA application, and both parties cited

them as applicable here.

The regulations provide that the “adjudicative

officer” who presided in the proceeding, such as an

ALJ, shall issue an “initial decision” containing

written “findings” on, among other things, whether

the agency’s position was substantially justified and

whether special circumstances make the award

unjust. 45 C.F.R. § 13.26. The regulations designate

the Board (the HHS “component that would have

jurisdiction over an appeal of the merits”) as the

“appellate authority” responsible for “review of the

adjudicative officer’s decision on the fee applica-

tion[.]” 45 C.F.R. § 13.27(a), (b).

App. 27

It is clear, then, that the Board is in an appellate

posture with respect to the ALJ’s findings about

whether to make an EAJA award. Accordingly, our

guidelines on review of ALJ EAJA decisions provide

that the standard of review on a disputed factual

issue is whether the ALJ’s decision is supported by

substantial evidence in the whole record, and that the

standard of review on a disputed issue of law is

whether the ALJ’s decision is erroneous.”

As CMS argues, there are sound reasons for us to

defer to an ALJ on EAJA issues that involve evaluat-

ing the parties’ behavior during the proceedings

before the ALJ (such as whether that behavior is a

special circumstance making an EAJA award unjust),

or on other matters with respect to which the ALJ is

best situated to make a judgment.

Park Manor argues, however, that the “substan-

tial justification” test (which we discuss below) is a

purely legal standard and not a factual matter to

evaluate under the substantial evidence test, as CMS

argues that we should. As explained below, the “sub-

stantial justification” test requires an analysis of

whether CMS’s position had a reasonable basis in law

and fact. Whether CMS had a reasonable basis in law

is a matter that we review for legal error under our

guidelines — a de novo review. Whether CMS had a

" Guidelines — Review of Initial Decisions on Fee Applica-

tions Under the Equal Access to Justice Act, http://www.

hhs.gov/dab/guidelines/eaja. html.

App. 28

reasonable basis in fact does not generally require

either the ALJ or us to determine what the facts

were; instead, the analysis focuses on whether CMS

had a reasonable factual basis, given the undisputed

facts and the evidence regarding disputed facts, for

the position CMS took. This is not a purely factual

question. Since, however, the substantial evidence

standard calls for us to defer to an ALJ’s inferences

drawn from the evidence so long as those inferences

were reasonable, even if we may not have drawn

those inferences ourselves, we similarly in an EAJA

case defer to an ALJ’s reasonable judgment on

whether there was a reasonable basis in fact for the

agency position (so long as the ALJ did a correct

analysis under the EAJA). Also, if the ALJ makes

findings of fact regarding disputed factual issues such

as what evidence an agency had available at a par-

ticular stage of the proceedings, we apply the sub-

stantial evidence standard to review those findings.

We note, however, that where, as here, a party

raises threshold issues about whether an ALJ applied

the correct legal standards under the EAJA in deter-

mining whether the agency position was substan-

tially justified, those issues are purely legal ones that

we review de novo. Hanover Potato Products, Inc., v.

Shalala, 989 F.2d 123, 127 (3rd Cir. 1993). If we agree

that the ALJ made a prejudicial legal error, then we

must determine whether to remand the case or to

resolve it ourselves, applying the correct test and

addressing any material issue the ALJ did not ad-

dress. If applying that test requires us to address

App. 29

factual disputes on which the ALJ made findings,

however, we then apply the substantial evidence

standard.

B. Park Manor’s request for an EAJA award under

5 U.S.C. § 504(a)(1)

1. Requirements for an award to a “prevailing

party”

Under the EAJA, a federal agency that conducts

an “adversary adjudication” must award to an eligible

“prevailing party” the “fees and other expenses in-

curred by that party in connection with that proceed-

ing, unless the adjudicative officer of the agency finds

that the position of the agency was substantially

Justified or that special circumstances make an award

unjust.” 5 U.S.C. § 504(a)(1) (emphasis added).

In this case, CMS does not deny that there was

an “adversary adjudication” and that Park Manor

met the requirements for award eligibility. Also,

although Park Manor asserts that the ALJ failed to

consider all of the issues on which Park Manor pre-

vailed, CMS does not challenge the ALJ’s finding that

Park Manor was a “prevailing party.” Park Manor is

therefore entitled to fees and expenses in connection

with the proceedings unless CMS’s “position” was

“substantially justified” or “special circumstances”

make an award unjust.

According to the EAJA statute (as amended in

1996), the “position of the agency” refers not only to

the “position taken by the agency in the adversary

App. 30

adjudication,” but to “the action or failure to act by

the agency upon which the adversary adjudication is

based.” 5 U.S.C. § 504(b)1)(E). Similarly, HHS’s

EAJA regulations state that the agency’s position

“includes, in addition to the position taken by the

agency in the proceeding, the agency action or failure

to act that was the basis for the proceeding.” 45

C.F.R. § 13.5(b)(1).

The EAJA does not define the term “substantially

justified.” The regulations, however, provide that an

agency’ position is substantially justified if it “was

reasonable in law and fact.” 45 C.F.R. § 13.5(b)(1).

The regulations further provide that a substantial

justification finding must be based on the administra-

tive record as a whole, and that a party’s status as a

prevailing party does not create a presumption that

the agency’s position in the proceeding was not sub-

stantially justified. Jd. However, the agency’s litigat-

ing party (here CMS) has the burden of proving that

its position was substantially justified. Jd.

These regulatory criteria reflect court decisions

on the EAJA. The Supreme Court has said that the

government’s position “can be justified even though it

is not correct, and... it can be substantially (7.e., for

the most part) justified if a reasonable person could

think it correct, that is, if it has a reasonable basis in

law and fact.” Pierce v. Underwood, 487 U.S. 552, 566,

n.2 (1988). The courts emphasize that, in performing

a substantial justification analysis, a tribunal applies

a different standard than the standard used to adju-

dicate the prevailing party’s rights in the underlying

App. 31

merits proceeding. United States v. Hallmark Const.

Co., 200 F.3d 1076, 1080 (7th Cir. 2000). Conse-

quently, the findings or conclusions that support the

decision on the prevailing party’s merits claim, and

other circumstances relevant to that decision (such as

the stage of the proceeding when it was made), are

rarely conclusive factors in a substantial justification

analysis.” Id. at 1079-80; FJ. Vollmer Co. v. Magaw,

102 F.2d 591, 595-96 (D.C. Cir. 1996). According to

one court, a proper substantial justification analysis

focuses on “‘the actual merits of the Government’s

litigating position’” and is global or comprehensive in

scope, examining “not simply whether the govern-

ment was substantially justified at the beginning or

end of the proceedings, but whether the government

was substantially justified in continuing to push

forward at each stage.” Hallmark, 200 F.3d at 1080

(quoting Pierce, 487 U.S. at 569).

Because a substantial justification inquiry fo-

cuses on the agency’s litigation position in the merits

proceeding, the context in which that proceeding

arose and was conducted may be relevant in evaluat-

ing the agency’s position. We found no court opinion

applying the EAJA to a case arising from the nursing

facility enforcement process. Based on our experience

” “Conceivably, the Government could take a position that is

not substantially justified, yet win; even more likely, it could

take a position that is substantially justified, yet lose.” Pierce,

487 US. at 569.

App. 32

with this process, we consider the following factors to

be important to an EAJA analysis in this context:

¢ The enforcement process is based on the as-

sumption that all participation requirements

must be met. Thus, the enforcement regulations

in 42 C.F.R. Part 488 authorize CMS to impose a

CMP or other remedy based on any finding of

noncompliance. 42 C.F.R. § 488.408(d)(3)i). The

goal of the requirements is to protect the health

and safety of vulnerable facility residents. For this

reason, the facility has the ultimate burden of

persuasion in an enforcement proceeding to show

substantial compliance once CMS has made a

prima facie case of noncompliance. Batavia Nurs-

ing and Convalescent Center, DAB No. 1911

(2004).

¢ The enforcement process contemplates that

CMS will usually rely on state surveys to deter-

mine whether a facility is in substantial compli-

ance and whether to impose remedies to compel

corrective action. CMS may approve or disap-

prove a state survey agency’s certification of non-

compliance. 42 C.F.R. § 488.330(a)1)(C). If CMS

approves, CMS then “imposes remedies

promptly” after “promptly notifying the facility of

the deficiencies and impending remedy or reme-

dies[.]” 42 C.F.R. § 488 331(e)(2\i). This process

is intended, by design and statutory mandate, to

“minimize the time between the identification of

violations and final imposition of the remedies[.]”

Section 1819(h\(2XB) of the Act; see also 59

Fed. Reg. 56,116, 56,156 (Nov. 11, 1994). The

process also contemplates corrective action and

revisit surveys to determine whether substantial

App. 33

compliance has been achieved. 42 C.FR.

§ 488.330(g)(4).

¢e The participation requirements seek to ensure

positive resident care outcomes and to give facili-

ties flexibility in how to achieve those outcomes.

See, e.g., 54 Fed. Reg. 5316, 5332 (1989). A facil-

ity is given an opportunity during a survey,

through state IDR, and at the ALJ hearing to

produce evidence to show that an adverse resi-

dent outcome was unavoidable.

e The hearing procedures at 42 C.F.R. Part 498

reflect the expectation that issues may be added

or eliminated as the proceedings progress, new

survey results are issued, survey findings are re-

solved through IDR or settlement discussions,

and remedies are added or rescinded.

¢ Some of the participation requirements contain

modifiers such as “significant” or “adequate” that

require judgment to apply. Even experts may

disagree on whether these modifiers apply to a

given set of facts.

¢ Evaluating compliance often involves interpret-

ing medical records, made by caregivers whose

writing may be partially illegible and who often

use abbreviations and symbols, including nota-

tions the relevance of which may not be readily

apparent until a case is fully presented and the

legal requirements have been parsed in context.

¢ Evaluating compliance may also involve bal-

ancing the goal of one provision (such as protect-

ing residents’ rights) with the goal of another

provision (such as ensuring quality of care).

App. 34

e The regulations contain a general requirement

for services consistent with professional stan-

dards of quality. 42 C.F.R. § 483.20(k\3). Those

standards, although not explicit on the face of the

regulations, often inform CMS’s judgment about

whether a facility is in compliance, but may be

disputed or raise notice questions.

e Evidence in these cases often is not direct evi-

dence but evidence from which a party seeks to

have the adjudicator draw inferences of material

facts.

These factors inform our analysis below.

2. The ALdJ’s substantial justification analysis

did not comply with applicable requirements.

The ALJ denied an award to Park Manor as a

prevailing party because he concluded that CMS’s

position was substantially justified. Park Manor

contends that this conclusion is invalid because the

ALJ failed to evaluate CMS’s position in its totality.

In particular, Park Manor contends that the ALJ

failed to consider the agency actions that were the

bases for the merits proceeding (actions that Park

Manor claims were unreasonable) and erroneously

confined his discussion to the issues addressed at the

in-person hearing. Park Manor also contends that the

ALJ inadequately analyzed whether CMS had rea-

sonable bases for seeking affirmance of four findings

of noncompliance (under tags F279, F309, F332, and

F496) from the March survey that were not addressed

in the ALJ Merits Decision. According to Park Manor,

App. 35

the ALJ EAJA Decision “merely recites the allega-

tions in the SOD” regarding these four findings and

provides “[nJo analysis of the supporting and contrary

evidence” and little or no “explanation of the ALJ’s

reasoning|.]” PM Brief at 20. Park Manor also con-

tends that the ALJ erred in failing to consider

whether CMS was justified in seeking remedies based

on tag F157 from the June revisit survey, and in

failing to determine whether CMS had a reasonable

basis for pursuing tag F444 from the March survey.

(CMS also takes exception to the ALJ’s failure to

address tag F444.)

We find that the ALJ did not do a substantial

justification analysis that comports with the statute

and regulations. As noted, the EAJA and HHS’s

January 2004 regulations define the phrase “position

of the agency” to include the agency actions (or fail-

ures to act) that were the bases for the proceeding.

The ALJ did not consider or evaluate these predicate

agency actions. The ALJ EAJA Decision quotes a

superseded provision that describes the substantial

justification inquiry as an evaluation of whether the

agency’s “position in the proceeding was substantially

justified at the time the proceeding was initiated.”

ALJ EAJA Decision at 6-7, quoting unamended 42

C.F.R. § 13.5(a). Yet, the ALJ’s discussion of CMS’s

position in fact focused entirely on the issues ad-

dressed at the in-person hearing.

In addition, the ALJ did not adequately support

his findings that CMS’s position on tags F279, F309,

F332, and F469 had a reasonable basis in law and

App. 36

fact. Regarding each of these tags, the ALJ EAJA

Decision contains a single, short paragraph that

briefly states the basis for CMS’s allegation of non-

compliance. ALJ Merits Decision at 14-16. Although

the ALJ indicated in each paragraph that his finding

was based on evidence in the record, the ALJ did not

describe or evaluate that evidence in any detail.

Given the difficulty of applying the EAJA reasonable-

ness standard, the significant amount of evidence

introduced by the parties, and the fact that there was

no previous ruling on the merits of these four tags,

the ALJ should have thoroughly explained the rea-

sons for his finding on each tag. Hallmark Const. Co.,

200 F.3d at 1080 (decision should contain an “evalua-

tion of the factual and legal support for the govern-

ment’s position”).

Another problem is that the ALJ focused only on

the evidence tending to support CMS’s position,

indicating in each instance that this evidence was

sufficient to prove Park Manor’s noncompliance. Such

a cursory, one-sided evaluation does not satisfy EAJA

requirements and gives no assurance that the ALJ in

fact considered the opposing evidence. The statute

and regulations require an adjudicative officer to

evaluate the agency position in light of the entire

administrative record, including rebuttal evidence

known to the agency. 45 C.F.R. § 13.5(b)(1); Alphin v.

National Transp. Safety Board, 839 F.2d 817, 822

(D.C. Cir. 1988).

Most significantly, the ALJ did not determine

whether CMS was substantially justified in pursuing

App. 37

remedies based on findings from the June revisit

survey. The ALJ acknowledged that his summary

judgment ruling had “affected the remedies that

remained at issue.” ALJ EAJA Decision at 19. He did

not recognize, however, that Park Manor’s successful

effort to overturn the remedies based on findings

from the June revisit survey was a potential basis for

award.

HHS’s EAJA regulations provide:

When two or more matters are joined together

for one hearing, each of which could have

been heard separately ... and an applicant

has prevailed with respect to one or several

of the matters, an eligible applicant may re-

ceive an award for expenses associated only

with the matters on which it prevailed if the

Department’s position on those matters was

not substantially justified.

45 C.F.R. § 13.5(b)(2) (italics and emphasis added). In

this context, a “matter,” for purposes of section

13.5(b)(2), could be a request for hearing on a CMS

“initial determination.” While arguably CMS made

four “initial determinations” (set out below), the

parties litigated only two “matters” on which Park

Manor was a “prevailing party.” The first matter was

the appeal from the finding of noncompliance result-

ing in the CMP for the period March 22 to June 10,

2001. This matter stemmed from CMS’s May 4, 2001

determination, which Park Manor appealed on May

5, 2001. R. 12. Resolving that matter required the

App. 38

ALJ to assess the merits of findings from the March

survey.

The second matter was the appeal from the

noncompliance finding resulting in a CMP and DPNA

for the pericd June 11 to July 23, 2001. This matter

stemmed from CMS’s July 3, 2001 determination,

which Park Manor appealed on July 12, 2001. R. 20.

Resolving that matter required the ALJ to assess the

merits of findings from the June revisit survey.

It is apparent, then, that these two matters -

having arisen from separate appeals of noncompli-

ance findings based on different surveys and result-

ing in different remedies — “could have been heard

separately” by the ALJ. Consequently, the fact that

Park Manor succeeded in overturning the remedies

for the period June 11 to July 23, 2001 was a poten-

tial ground for an EAJA award.”

CMS’s position on that matter was, of course,

that the remedies were proper. As of July 2002, this

position was based entirely on the June revisit sur-

vey’s finding under tag F157. Park Manor opposed this

position in its motion for summary judgment, contend-

ing that because the IDR decision had rescinded tag

Indeed, had Park Manor appealed only the July 3, 2001

initial determination and obtained a summary judgment ruling

disposing of the matter in Park Manor’s favor (or had the

appeals not been consolidated), Park Manor could have sought

an EAJA award as prevailing party, regardless what happened

with respect to CMS’s May 4, 2001 determination

App. 39

F157, CMS could not rely on that tag to support the

remedies. The ALJ concluded that CMS had not

followed proper procedures to overrule the IDR result

on tag F157, and therefore set aside the remedies

that CMS had imposed based on the June revisit

survey. Having obtained this favorable ruling by the

ALJ, Park Manor was the prevailing party on this

matter."

In the EAJA proceeding before the ALJ, Park

Manor argued that CMS was not justified in seeking

remedies based on tag F157. The ALJ should have

addressed that argument and determined whether

Park Manor was entitled to an award for the reason-

able fees and expenses it incurred to overturn those

remedies.

Citing Commissioner, INS v. Jean, 496 U.S. 154

(1990) and other cases, CMS asserts that an award

should not be based on a piecemeal examination of

the litigation, and that we must make a single sub-

stantial justification finding encompassing the entire

merits proceeding. CMS Response at 21, 27. In Jean,

' The Supreme Court has said that a party is a prevailing

party if it “‘succeed|s! on any significant issue in (the) litigation

which achieves some of the beriefit [it] sought in bringing suit.’”

Hensley v. Eckerhart, 461 U.S. 424, 433 (1983) (quoting Nadeau

v. Helgemoe, 581 F.2d 275, 278-79 (1st Cir. 1978)). In another

formulation, the Court has said that a party prevails when the

litigation has resulted in a “material alteration of the legal

relationship of the parties in a manner which Congress sought

to promote in the fee statute.” Texas State Teachers Ass'n v.

Garland Indep. Sch. Dist., 489 U.S. 782, 792-93 (1989).

App. 40

the Supreme Court stated that “[wJhile the parties’

postures on individual matters may be more or less

justified, the EAJA ~ tike other fee-shifting statutes —

favors treating a case as an inclusive whole, rather

than as atomized line items.” 496 U.S. at 161-62. The

relevance of that statement to this situation is un-

clear because the issue in Jean was fairly narrow —

namely, whether an EAJA award could include fees

and expenses incurred by the prevailing party in the

fee litigation. Jean did not indicate the scope of a

substantial justification inquiry with respect to a

proceeding in which the prevailing party sought relief

from multiple government actions, any one of which

was sufficient to support remedies that the party

sought to avoid by participating in the proceeding.

Some courts that have confronted these or similar

circumstances have required the government to

justify each such action and, when appropriate, have

approved a partial award relating to the unjustified

actions. See, e.g., Alphin, 839 F.2d at 822-823; Ameri-

can Wrecking Corp. v. Secretary of Labor, 362 F.3d

321, 325-26 (D.C. Cir. 2004). This approach, which

HHS adopted in section 13.5(b)(2), is consistent not

only with how courts define the term “prevailing

party” in fee-shifting cases, but also with the purpose

of the EAJA, which is “to eliminate for the average

person the financial disincentive to challenge unrea-

sonable government actions.” Jean, 496 U.S. at 164.

We do not imply here that a substantial justifica-

tion analysis must address the reasonableness of

every single argument an agency makes during a

App. 41

proceeding. Roanoke River Basin Ass’n v. Hudson,

991 F.2d 132, 138-139 (4th Cir.), cert. denied, 510 U.S.

864 (1993); Hanover Potato Products, 989 F.2d at 131

(noting that not every argument made by an agency

must be substantially justified, but that a district

court must evaluate every “significant argument” in

order to determine whether the government’s position

“as a whole” was substantially justified). The analysis

must, however, be consistent with the EAJA statute

and regulations and must provide more than a cur-

sory or one-sided review of the evidence.

Our finding that the ALJ did not perform a legally

adequate substantial justification analysis means that

we must either remand the case to the ALJ or modify

the analysis. Given the history of this case, we deter-

mined that remand would take additional time and

money, without contributing substantially to the result,

and therefore be inconsistent with EAJA goals. Thus,

we instead modify or supplement the ALJ’s analysis as

necessary to apply the appropriate standards. We also

modify the decision to include analyses of issues raised

before the ALJ that he did not address. Finally, we find

it necessary to modify the ALJ’s analysis regarding tag

F157 from the March survey to correctly reflect our

decision on the merits regarding that tag.

3. CMS acted reasonably in taking the actions

that were the bases for the proceeding.

Having founda that the ALJ did not consider the

“agency actions (hat were the bases for the proceeding

App. 42

in evaluating the “position of the agency,” we consider

those actions here.

CMS contends that it reasonably relied on the

survey findings in the SODs in taking these actions,

and that the reasonableness of its reliance can be

discerned from the face of those findings. We find

merit in this contention.

Park Manor’s right to a hearing arose when it

timely appealed the following four “initial determina-

tions” by CMS:

e The determination that Park Manor was not in

substantial compliance as of March 22, 2001 (the

date the March survey was completed), which re-

sulted in the imposition of a $250 per day CMP

effective on that date;

e The determination that Park Manor continued

to be in a state of noncompliance on June 11,

2001 (the date of the first revisit survey), which

resulted in a continuation of the previously im-

posed $250 per day CMP and a DPNA effective

on July 15, 2001;

e The determination that on March 20 and 21,

2001, Park Manor had a deficiency, described un-

der tag F324 in the initial SOD for the March

survey, that placed one or more residents in “im-

mediate jeopardy,” which resulted in the imposi-

tion of a $6,200 per day CMP for those two days;

and

e The determination, based on the immediate

jeopardy finding under tag F324, that Park

Manor had provided a “substandard quality of

App. 43

care,” which resulted (temporarily at least) in

loss of approval of its NATCEP.

As discussed below, Park Manor was not a pre-

vailing party in its appeal of the latter two determi-

nations and for that and other reasons is not entitled

to an award based on them. Thus, we examine CMS’s

pre-adjudication actions only with respect to the first

two determinations.

Given the goal and structure of the enforcement

process we outlined above, CMS’s pre-adjudication

actions are properly judged reasonable as long as (1)

the SOD issued by the state survey agency contains

factual allegations that provide a reasonable basis for

a finding of noncompliance under the relevant re-

quirements, (2) there are one or more findings of

noncompliance that are legally sufficient to support

the remedy imposed, and (3) CMS does not know or

have reason to know of credible evidence that would

undermine the legality of its remedy determination.

Applying these criteria, we find that each of CMS’s

pre-adjudication actions was justified:

¢ The determination resulting in the imposition of

a $250 CMP as of March 22, 2001. This determi-

nation was based initially on the March survey.

In the merits proceeding, CMS presented evi-

dence supporting six findings from that survey

and reduced the per day amount to $150. As we

discuss in the next section, CMS had a reasonable

basis for defending those findings in the merits

proceeding, and any one of them was legally suffi-

cient to support the $150 CMP. Together, they

App. 44

were also sufficient to support a $250 CMP. See

42 C.F.R. § 488.408(d\3) (authorizing CMS to

impose a CMP of $50-$3,000 per day for any defi-

ciency that causes the facility not to be in sub-

stantial compliance). In short, CMS acted

reasonably in issuing the determination that re-

sulted in the imposition of a CMP as of March 22,

2001.

e The determination resulting in continuation of

the $250 per day CMP as of June 11, 2001 and

the imposition of a DPNA effective July 15, 2001.

This determination was based on the June revisit

survey's findings of noncompliance under six

tags. The survey findings under at least four of

those tags — tags F250, F281, F329, and F501 —

gave CMS reasonable grounds to determine that

Park Manor continued to be in a state of non-

compliance as of June 11, 2001.” See CMS Ex. 6.

These findings in turn authorized CMS to con-

tinue the $250 per day CMP and to impose a

DPNA as well. 42 C.F.R. §§ 488.417(a)(1) and

488.408(d\3)i) (authorizing CMS to impose a

* For example, the SOD found noncompliance with 42

C.F.R. § 483.15(g) (tag F250). This section requires a facility to

provide “medically-related social services to attain or maintain

the highest practicable physical, mental, and psychosocial well-

being of each resident.” The survey agency found that Park

Manor had failed to provide Resident 12 with services to help

him in the dying process. Among other things, the survey agency

found that Park Manor had not followed up on a physician-

recommended hospice referral. The surveyors determined that

this deficiency had the potential for more than minimal harm.

CMS Ex. 6, at 3-4.

a a

App. 45

DPNA for days on which a facility is not in sub-

stantial compliance). Consequently, CMS acted

reasonably in issuing this determination.

Park Manor points out that after it appealed, the

State survey agency modified or withdrew a number

of the deficiency findings during IDR; that CMS

rescinded the immediate jeopardy finding and associ-

ated CMP; and that CMS elected not to rely on other

findings. Park Manor contends that this abandon-

ment, rescission, or modification of findings and

remedies shows that the actions leading to the pro-

ceeding were not reasonable on the whole. Park

Manor further contends that in order to avoid liabil-

ity for an EAJA award, CMS was obliged to establish,

with evidence and argument, that each and every

citation and remedy emanating from the two surveys,

not just the ones it pursued before the ALJ, had a

reasonable basis. In addition, Park Manor suggests

that independent investigation by CMS would have

revealed the weakness of the abandoned or modified

deficiency citations, and that CMS was unreasonable

in not performing one before deciding to impose the

remedies it did. In short, Park Manor contends that

CMS’s failure to justify its approval of these other

survey findings warrants an EAJA award regardless

of whether CMS had a reasonable basis for the find-

ings it defended in the merits proceeding.

We reject this argument because we do not accept

its two key premises. The first premise is that CMS

may not reasonably rely on state survey findings in

making its remedy decisions but must investigate — or

App. 46

look behind — those findings to verify their correct-

ness before deciding to impose remedies. However,

this premise is inconsistent with the enforcement

process described above. Reliance by CMS on state

survey findings is precisely what this process permits

and encourages. Requiring CMS to investigate every

facility before imposing remedies would frustrate the

goals of protecting residents and encouraging facili-

ties to correct quickly any deficiencies that jeopardize

resident health and safety. (As our criteria indicate,

however, we reject CMS’s suggestion that it could

never have a duty to look behind survey findings

before acting. Accepting that suggestion would under-

cut the EAJA goals.)

Park Manor’s second premise is that CMS’s

remedy decisions constitute acceptance or approval of

each of the many survey findings in the relevant

SODs. This premise is a mistaken one because CMS

may impose a CMP or other remedy based on any

single finding of noncompliance. Regarding the reme-

dies that CMS imposed for alleged deficiencies that

were not at the immediate jeopardy ievel, Park

Manor would have us conclude that those remedies

were inappropriate or unreasonable even if CMS

showed that some deficiency findings had a reason-

able basis in law and fact and were otherwise legally

sufficient to warrant the remedies. Park Manor

points out that CMS might have chosen a different

remedy (or permitted corrective action first) but for

the survey findings that were later abandoned. Such

speculation is irrelevant for EAJA purposes, however.

App. 47

CMS’s pre-adjudication actions can be considered

reasonable for EAJA purposes if there are some

legally sufficient grounds for the actions, regardless

of whether other allegations were made that might

have affected how CMS exercised its discretion. As

discussed, there were legally sufficient grounds for

CMS’s pre-adjudication actions regarding the two

matters on which Park Manor was a prevailing

party.”

We do not wish to imply that the immediate

jeopardy and substandard quality of care determina-

tions were entirely irrelevant to the EAJA analysis.

These determinations arguably constitute two addi-

tional “matters” under section 13.5(b)(2). These

matters were pending before the ALJ as of May 5,

2001. They ended on July 3, 2001 when CMS with-

drew the $6,200 per day CMP and the substandard

quality of care finding. Because the matters were

concluded in Park Manor’s favor, an issue exists

about whether an award can be made regarding

them.

To resolve that issue, we need go no further than

to inquire whether Park Manor was a prevailing party

on the matters. A party is a prevailing party for pur-

poses of the EAJA if the proceeding was a “catalytic,

'’ Moreover, the survey findings that were withdrawn at an

early stage of the proceedings are inconsequential for purposes

of a substantial justification analysis, which ultimately must

evaluate the agency’s overall position, considering the adminis-

trative record as a whole.

App. 48

necessary, or substantial factor” in obtaining the

favorable result. Maduka v. Meissner, 114 F.3d 1240,

1241 (D.C. Cir. 1997). Park Manor did, of course,

obtain CMS’s rescission of the immediate jeopardy

finding, the $6,200 per day CMP, and the substan-

dard quality of care finding. However, CMS took that

action in direct response to the IDR results. No ruling

by the ALJ prompted CMS to take these actions, and

Park Manor was not required to submit evidence

relevant to these matters in the merits proceeding.

There is, in short, no basis to conclude that the pro-

ceeding before the ALJ was a catalytic, necessary, or

substantial factor in resolving these matters. Conse-

quently, Park Manor is not a prevailing party regard-

ing these matters, and CMS was not required to show

that its positions on them were substantially justi-

fied.

Even if we considered Park Manor a prevailing

party on these matters, however, we would find that

CMS showed it had a reasonable basis for determin-

ing that Park Manor was in a state of noncompliance

at the immediate jeopardy level on March 20-21,

2001, and therefore that Park Manor had provided

substandard quality of care. The survey findings were

legally sufficient on their face as a basis for these

actions. * There is no evidence that when CMS took

‘’ The SOD found noncompliance with section 483.25(h\2),

which requires a facility to ensure that a resident receives

“adequate supervision and assistance devices to prevent acci-

dents.” CMS Ex. 1, at 86. The SOD describes a resident whose

(Continued on following page)

App. 49

the actions, CMS possessed credible evidence calling

these survey findings into question.

For the reasons above, CMS had a reasonable

basis for taking the actions that were the bases for

the adversary adjudication.

4. CMS’s position that Park Manor was prop-

erly subject to a CMP effective on March 22,

2001 was substantially justified.

As discussed, whether Park Manor was properly

subject to a CMP effective on March 22, 2001 is one of

two matters actually litigated in the merits proceedings.

difficulty swallowing had been documented, who had recently

been hospitalized for aspiration pneumonia, and whose care

plan called for extensive one-person assistance with meals.

Surveyors found that Park Manor had failed to supervise and

assist this resident to ensure safe intake of nourishment to

prevent coughing, choking, and potential aspiration. Jd. The

SOD describes an incident on March 14 on which the resident

was observed to be coughing while having breakfast but received

no assistance with eating. Jd. at 88. The SOD also describes

other occasions — on March 19 or 20, 2001 —- in which the

resident was observed choking on liquids or showing signs of

aspiration (“tracheal gurgling”) in circumstances in which the

assistance provided could reasonably be considered inadequate.

Id. at 88-91. Based on the SOD, CMS could reasonably find that

Park Manor failed to provide adequate supervision to guard

against accidental harm from choking or aspiration and that

there was “immediate jeopardy.” See 42 C.F.R. § 488.301. The

survey finding of immediate jeopardy was, in turn, sufficient to

support the $6,200 per day CMP, as well as the substandard

quality of care finding. 42 C.F.R. § 488.408(e); 42 C.FR.

§ 488.301.

App. 50

For the following reasons, we find that CMS’s posi-

tion on this matter was substantially justified.

First, we have just discussed why the actions

that were the basis for the proceeding on this matter

were reasonable. Second, for reasons set out in sec-

tions 4a.-4e. below, we conclude that CMS had rea-

sonable bases for contending that, as of March 22,

2001, Park Manor was not in substantial compliance

with the Medicare participation requirements associ-

ated with tags F157, F279, F309, F332, and F496.

CMS also had reasonable grounds for defending the

survey agency’s finding of noncompliance under tag

F444, which the ALJ overturned in his summary

judgment ruling (see section 4f., below).

Third, Park Manor did not show in the proceed-

ing that it had corrected these six alleged instances of

noncompliance prior to the June revisit survey. Once

identified, any noncompliance is presumed to con-

tinue until the state survey agency verifies correction

during a revisit survey or by other acceptable means.

Spring Meadows Health Care Center, DAB No. 1966

(2004).

Finally, the regulations authorized CMS to

impose the remedy it ultimately sought — namely, a

$150 per day CMP - for the alleged noncompliance.

42 C.F.R. §§ 488.434, 488.438(ax1)Gi). Park Manor

did not contend in the proceedings that the amount of

this CMP was unreasonable, see R. 83, and a finding

in favor of CMS on any one of the six contested find-

ings was legally sufficient to support the CMP.

App. 51

Park Manor argues that CMS’s position on this

matter was not substantially justified because CMS

abandoned its reliance on multiple deficiencies that

supported its determination to impose the CMP. It is

true, of course, that CMS scaled back its case-in-chief

during the proceeding. On July 2002, before the

parties had exchanged evidence and witness lists,

CMS reduced the CMP and informed the ALJ and

Park Manor that it would seek $150 per day based on

only six of the 17 findings from the March survey.

CMS argues that its decision to pursue only some

of the findings before the ALJ did not render its

overall position unreasonable because a $150-$250

per day CMP did not warrant litigation over every

single finding of noncompliance. CMS Response at 27-

28.

We agree with CMS. In the merits proceedings,

CMS could have reasonably relied on any number of

the deficiencies alleged in the SOD, provided that

they were supportable and justified the amount of the

CMP imposed. The six findings that CMS ultimately

chose to pursue were, in fact, sufficient to support the

CMP, either as modified or as originally imposed

($250 per day being only 8.3 percent of the maximum

amount authorized).

CMS’s decision to streamline its case would have

given us more concern had CMS actually presented a

case on the abandoned findings before July 2002,

forcing Park Manor to mount opposition. But that it

is not what happened. After September 2001, the

App. 52

federal proceedings were held in abeyance while the

State fines were being litigated. When the State

proceedings ended, CMS reviewed the evidence

developed in the State proceeding and, based on its

review, decided to narrow its case-in-chief before Park

Manor was required to submit its exhibits, written

direct testimony, and initial pre-hearing brief. See

CMS Answer at 16. Given these circumstances, we

find that CMS took adequate and timely measures to

assess the merits of its position on this matter and to

narrow the scope of its case-in-chief accordingly.

We next discuss why we find that CMS had

reasonable bases for defending the six contested

findings from the March survey, beginning with tag

F157. Although our discussion about these findings

refers to undisputed facts reflected in the documen-

tary record, we are not making findings on disputed

issues of fact or reaching conclusions of law on dis-

puted issues of law. In other words, we are not decid-

ing whether CMS’s position was the correct one, but

only whether a reasonable mind could think it cor-

rect.

a. Tag F157

The ALJ’s substantial justification determination

was based largely on an analysis of CMS’s position

regarding tag F157, a position that we rejected in our

previous decision. Since the ALJ’s analysis does not

correctly reflect the bases for our decision regarding

that tag and contains other errors, we provide our

App. 53

own analysis of whether CMS’s position on this tag

had a reasonable basis and conclude that it did.

Under tag 157 in the March survey, the SOD

found:

Between 03/02/01 and 03/06/01, resident #20

had continued problems with an elevated

temperature, decrease in oxygen saturation

levels to 89%, fluctuations in his pulse, in-

creased lethargy, decline in ambulation and

transfer abilities, mottling to his lower ex-

tremities, and congestion with rales in his

lung fields. Between 5:26 p.m. on 03/02/01,

and 9:33 a.m. on 03/05/01, there were no at-

tempts to contact the physician. The resi-

dent’s niece/guardian of person was not

updated of [his] worsening condition until

12:36 p.m. on 03/05/01. By 1:46 a.m. on

03/06/01, [he] had died at the nursing home.

CMS Ex. 4, at 2.

During proceedings before the ALJ, CMS dropped

the allegation concerning notice to the niece, pre-

sumably based on evidence presented by the facility

that the niece had been contacted several times on

the evening of Friday, March 2, and had visited the

resident on Sunday, March 4. Relying on the opinion

of a CMS surveyor who oversaw the state survey,

CMS continued to assert that the resident showed

signs and symptoms on March 3 and 4 that required

immediate physician notification, beyond the notifica-

tion given at 5:26 p.m. on March 2, in response to

which the physician had ordered an antibiotic and

App. 54

urinalysis for symptoms of a urinary tract infection

(UTI). CMS Ex. 54, at 9913-15. The surveyor’s

opinion, submitted as written direct testimony pur-

suant to the pre-hearing procedures set by the ALJ,

stated that it was based on certain CMS exhibits.

Those exhibits included the nurses notes for the

weekend in question and a resident assessment from

January, but did not include nurses notes for January

and February (submitted by Park Manor) and do not

indicate any awareness that the contemporaneous

nurses notes evidence a conversation a Park Manor

nurse had with the resident’s physician at 9:46 p.m.

on Friday, March 2, after the contact referred to in

the SOD. The ALJ Merits Decision found that one of

the symptoms on which the surveyor relied (oxygen

saturation level) was not a significant change, but

found in CMS’s favor on the basis that the resident’s

lack of ability to ambulate, non-responsiveness (leth-

argy), and mottling were significant changes. His

decision did not mention the 9:46 p.m. contact with

the physician.

Park Manor appealed, and the Board reversed,

based on the wording of the regulation and its context

and history. Section 483.10(b)(11) gives a right to a

resident to have a facility notify a physician of a

“significant change in the resident’s status (i.e., a

deterioration in health, mental, or psychosocial status

in either life-threatening conditions or clinical com-

plications).” The regulatory history acknowledges

that nursing judgment may be involved in evaluating

what is significant for a particular resident, gives

App. 55

examples of “life-threatening conditions” (heart

attack and stroke), and supports a conclusion that the

potential need for physician intervention is a factor in

whether notice is required. The CMS surveyor had in

effect applied the regulation to mean that each indi-

vidual sign or symptom required physician notifica-

tion if it “could affect the physical or mental well-

being” of the resident, even if that sign or symptom

was consistent with what had already been reported

to the physician regarding a deterioration in the

resident’s status, and did not indicate a potential need

for additional physician intervention consistent with

exercise of the resident’s right to refuse treatment.”

The Board concluded that it was not clear that CMS, or

the ALJ, had applied a standard consistent with the

wording of the regulation and its history.”

* Contrary to what the ALJ suggests, the regulation

specifically authorizes a legal guardian to exercise a resident’s

rights, as our decision pointed out. Also, although the ALJ

questions how the requirement to notify a physician relates to

the possible need for physician intervention, CMS’s witness

acknowledged that the purpose of notifying the physician is to

obtain or alter treatment, that “no code” and “comfort measures

only” mean that a resident is to be kept comfortable and pain-

free at the end of life and that aggressive steps are not to be

taken to extend the resident’s life, and that there was no

evidence in the resident’s record that he was not comfortable

and pain-free. Tr. at 72-76. She indicated, however, that she was

unaware that the resident’s plan was for “comfort measures

only” and she questioned whether the resident was in fact dying.

Id.

For example, the ALJ stated that deterioration in life-

threatening conditions and clinical complications were “examples”

(Continued on following page)

App. 56

Applying the correct legal standard, the Board

then found that at the time Park Manor had last

reported to the physician on the resident’s status (at

9:46 p.m. on Friday) its staff was already aware of

some of the signs and symptoms that CMS later

treated as evidencing changes and had viewed those

signs and symptoms as indicating not merely a UTI,

but as consistent with an overall continuing decline

that had begun several months earlier, of a type to be

expected given his age and his pre-existing diagnoses.

The Board’s determination was limited to the facts of

the case, which included corroboration of the facility’s

nursing judgment regarding the resident’s status by

the resident’s niece, who had authority to exercise the

right to physician notification of a significant change

in status, had personal knowledge of the status, and

had nursing expertise. The Board concluded that

Park Manor had reasonably thought it was complying

with the requirement, under the particular circum-

stances of the case. DAB No. 1926, at 10-11.

While Park Manor acknowledged that mottling

on the resident’s extremities that appeared on Sun-

day, March 4 (at some time between 4:00 and 10:00

p.m.) would have been a significant change for a “full

code” resident, Park Manor relied on nursing stan-

dards for its assertion that the mottling did not

of significant changes. ALJ Merits Decision at 4. But the regula-

tion uses “i.e.,” not e.g. Even CMS did not in the merits proceed-

ing articulate the interpretation the ALJ now attributes to CMS,

nor did CMS’s witness.

App. 57

require notification for this resident, who was “no

code” and “comfort measures only.” Thus, the Board

did not take this acknowledgment to mean that Park

Manor had conceded the mottling was a significant

change requiring notice to the resident’s physician

beyond what Park Manor had already given. The

Board concluded, however, that, even if the mottling

were considered a significant change in physical

status for this resident (despite the “no code” and

“comfort measures only” directives), CMS had not

made a prima facie case that the failure to notify the

physician immediately of the mottling had the poten-

tial for more than minimal] harm. Thus, the Board’s

decision was fully consistent with past Board deci-

sions that, when there is a change that a facility

reasonably should have known was a significant

change in status, a deficiency may be found if there is

no immediate physician notification.

The issue for EAJA purposes, however, is not

whether CMS could anticipate that the Board would

reach a different result, but whether CMS’s position

had a reasonable basis in law and fact. Although we

agree with Park Manor that the ALJ misread our

decision, we conclude that CMS’s position on this tag

did have a reasonable basis in law. First, the regula-

tion requires a fact-based determination of whether

there has been a change in a resident’s physical,

mental, or psychosocial status since the last physi-

cian notification and whether that change is signifi-

cant for that resident. The parenthetical explanation

that this means “a deterioration in status in either a

App. 58

life-threatening condition or clinical complication”

and the examples of heart attack or stroke as life-

threatening conditions provide some guidance in

evaluating what is a significant change, but are not

unambiguous, particularly when applied to a fact

situation as complicated as the one at issue here.”

Second, while the Board’s decision was not, as

the ALJ found, based on a “novel interpretation”

inconsistent with the plain language of the regulation

(ALJ EAJA Decision at 12), there were no Board

decisions previously addressing the need for physi-

cian notification in equivalent circumstances. Nor

had the Board previously analyzed the wording and

" Indeed, the ALJ EAJA Decision reads the reference to

“deterioration” to mean that every “sign” of deterioration that

might signify a resident is dying should be reported. Park

Manor, on the other hand, reasonably interpreted the regulation

to mean that, where it had already consulted with a physician

about a clinical complication and other signs of deterioration

that indicated that the resident was dying, it was not required

to consult again if the signs and symptoms were the same or

were consistent with the change in status already reported to

the physician and if the facility made a reasonable judgment

that the sign or symptom did not signify a potential need for any

further medical intervention that would be consistent with the

resident’s wishes. The ALJ also refers to the resident’s signs as

“life-threatening,” but the regulation defines a_ significant

change as a “deterioration of the resident’s status in a life-

threatening condition” (such as a heart attack or stroke). While

the need for assistance in ambulating, lethargy, and mottling

may be signs of or result from “life-threatening conditions,” one

cannot determine whether they evidence a significant change in

the resident’s physical status without examining the circum-

stances.

App. 59

context of the requirement and its regulatory history

in as great a detail. Ultimately, our decision that

Park Manor made a reasonable nursing judgment

that none of the signs and symptoms on which CMS

relied constituted a significant change in the resi-

dent’s status rested primarily on our different analy-

sis of what the record showed regarding the resident’s

status prior to and at the time of the last consultation

with the physician late Friday evening.

With respect to the facts, we conclude that CMS

had a reasonable basis for its position, both at the

time of its initial determination and later." The SOD

for the March survey included a finding that the only

notification to the physician was the initial notifica-

tion of the UTI and a finding that the facility had not

notified the legal guardian, as required. As discussed

above, CMS does not have a duty to investigate the

facts asserted in an SOD prior to taking an enforce-

ment action, contrary to what Park Manor asserts.

Thus, we find that CMS had a reasonable basis in

fact for its initial determination, relying in part on

these findings in the SOD as a basis for imposing

remedies.

'" We recognize that the statement of “facts” in the ALJ

EAJA Decision contains some errors. For example, the ALJ

EAJA Decision refers to a failure to consult over a four-day

period, which is inaccurate. Also, contrary to what the ALJ

stated, the record does contain evidence about the resident’s

wishes. (See evidence cited in DAB No. 1926, at 5.)

App. 60

In arguing that CMS’s position was not substan-

tially justified, Park Manor focuses mainly on our

conclusion that CMS had not made a prima facie

showing of a potential for more than minimal harm

from the lack of immediate notification after the

mottling appeared. This conclusion does not necessar-

ily mean that CMS was not substantially justified in

pressing forward with its case on this tag, however.

CMS was relying on the CMS surveyor’s opinion on

symptoms other than the mottling as evidencing

significant changes, including what the surveyor saw

as a failure to respond to the antibiotic prescribed for

the UTI. The CMS surveyor also relied on the resi-

dent’s need for assistance with ambulation and his

lethargy, which the ALJ also found to be significant

changes in light of the fact that the resident had been

assessed as “ambulatory” at the time of his last

comprehensive assessment.” While we concluded that

Park Manor could have made a different reasonable

judgment, given other evidence in the record regard-

ing pre-existing declines in the resident’s abilities and

energy level and in light of the resident’s status at the

’* The resident assessment instrument (RAI) for January

2001 indicates that he could walk independently in his room,

but also that he needed supervision for transfers and when off

the unit, that he had fallen within the prior 30 days, and that,

for some functions, he was either totally dependent on staff or

required extensive assistance. CMS Ex. 12, at 2-3. CMS was not

unreasonable in relying on the RAI for some indication of the

resident’s status, even though we ultimately credited Park

Manor’s evidence showing that his status had declined between

the January RAI and the March events at issue here.

App. 61

last time the physician was updated on Friday eve-

ning, that evidence was not so conclusive, nor the

flaws in the surveyor’s opinion so apparent, that CMS

was unreasonable in going forward to hearing.”

Moreover, the problem with the lack of evidence

regarding the alleged potential for more than mini-

mal harm to the resident from failure to notify the

physician of the mottling was not readily apparent

without considering the resident’s wishes for comfort

measures only and evaluating whether the record

contained any evidence the resident was in pain or

discomfort.

At the hearing, CMS elicited testimony (on which

it then relied in its post-hearing brief) that it read as

” As we noted in our merits decision, the ALJ found Park

Manor’s witnesses to be credible, but not persuasive. Our

evaluation took into account that these witnesses had greater

experience in long-term care than the CMS surveyor, several of

them were personally familiar with the resident, and their

statements were corroborated by the written record and the

legal guardian. While their written direct testimony contained

information key to our decision, their statements were suffi-

ciently general that CMS could reasonably seek to test them

through cross-examination. Some flaws in the CMS surveyor’s

opinion, moreover, were not readily apparent un*:! cross-

examination. For example, on cross she admitted that antibiot-

ics do not work immediately and that the resident’s need for

help with ambulating was consistent with having a UTI (Tr. at

68-69), which undercut her view that Park Manor should have

consulted on alternative treatments for his UTI when he

continued to run a fever and that his need for assistance was a

significant change.

App. 62

showing that a resident would suffer pain and dis-

comfort from a UTI, a “high” fever, and difficulty

breathing and, therefore, as showing that the resi-

dent had suffered actual harm (although the testi-

mony, carefully read, merely indicates that these

could be associated with pain or discomfort). The

Board noted the lack of evidence from the resident’s

medical record that in fact he was suffering, and the

contrary evidence from his legal guardian, but again,

the weakness in CMS’s evidence was not so apparent

that CMS was unreasonable in going forward, espe-

cially given that CMS was not relying on this tag

alone to support the CMP.”

In its post-hearing submission, CMS also relied

on what it viewed as concessions it had elicited from

some of Park Manor’s witnesses on _ cross-

examination, including their part ownership interest

in the facility, which it could have reasonably thought

undercut their credibility. In addition, CMS sought to

** We also noted that the physician, after being contacted on

Monday, March 5, did not order any new treatment (which

undercut CMS’s position that, if called sooner, he may have

adjusted the medication for the UTI or otherwise found ways of

alleviating any discomfort the resident was experiencing). In the

EAJA proceeding, both CMS and the ALJ questioned the basis

for this finding. Page 4 of Appendix I to CMS’s post-hearing

brief, however, lists as an undisputed fact that the physician had

“issued no additional orders” after being contacted on March 5.

CMS did seek at and after the hearing to introduce evidence

that might have raised questions about whether to draw any

inference in Park Manor’s favor from this lack of new orders, but

the ALJ rejected this evidence on procedural grounds.

App. 63

introduce evidence from the transcript of the state

hearing that CMS thought undercut the testimony of

Park Manor’s witnesses who appeared before the ALJ

in the federal proceeding. Park Manor had opposed

admission of this evidence, but the ALJ deferred

ruling on the objection until after receiving the post-

hearing briefs. Although the ALJ ultimately did not

admit this evidence into the record (see ALJ Merits

Decision at 3-4), CMS was not unreasonable in think-

ing that the ALJ might admit it. While Park Manor

pointed out in reply to CMS’s post-hearing brief that

CMS had taken part of the state hearing testimony

out of context, CMS’s reliance on this evidence be-

came a moot issue after the ALJ declined to admit it.

We next turn to the other tags on which the ALJ

held a hearing. For those tags, we have, as indicated

above, determined that the ALJ’s analysis was insuf-

ficient under the EAJA. Because those tags (unlike

tag F157 from the March survey) were not addressed

in any merits decision, we necessarily provide more

detail in our analysis than would otherwise be re-

quired. Our conclusions are not, however, merits

conclusions based on the weight of the evidence.

b. F279

Tag F279 relates to 42 C.F.R. § 483.20(k)(1),

which requires a facility “to develop a comprehensive

care plan for each resident that includes measurable

objectives and timetables to meet a resident’s medi-

cal, nursing, and mental and psychosocial needs that

App. 64

are identified in the comprehensive assessment.” The

plan “must describe ... [tlhe services that are to be

furnished to attain or maintain the resident’s highest

practicable physical, mental, and psychosocial well-

being as required under § 483.25.” 42 C.FR.

§ 483.20(k)\(1)). The purpose of the care planning

requirement is to ensure that a resident receives the

services essential to meet his assessed needs and to

help the resident achieve or maintain his “highest

practicable” level of well-being. See section 1819(b)(2)

of the Act. The SOD made findings under tag F279

regarding the care of five residents. CMS Ex. 4, at 26-

34. CMS presented evidence regarding one of those

five residents, Resident 12. In addition, CMS intro-

duced evidence regarding a sixth resident, Resident

19. Although we reviewed CMS’s position on Resident

19 and find it reasonable, we discuss only CMS’s

position on Resident 12.” .

CMS contended that Park Manor had violated

section 483.20(k)\(1) because Resident 12’s plan of care

contained no measures to address his problem of

inadequate fluid intake. Resident 12 was 88 years old

at the time of the survey and suffered from Alz-

heimer’s type dementia. CMS Ex. 20, at 1. He was

” Park Manor’s care of Resident 19 is also at issue under

tag F309, discussed below. In its summary judgment motion,

Park Manor argued that the allegations regarding Resident 19

could not serve as a basis for noncompliance with section

483.20(k 1) because they were not set out under tag F279 in the

SOD. The ALJ rejected this argument. R. 59, at 10-11.

App. 65

5’2” tall, and his ideal body weight was 115 pounds.

CMS Ex. 21, at 3. In November 2000, he experienced

an acute episode of dehydration. CMS Ex. 17, at 4. In

response, his physician ordered intravenous fluids.

Id.; see also CMS Ex. 23, at 1 (entries for December

1).

In early December 2000, a Park Manor dietician,

Jennifer Timm, wrote that Resident 12 was “nutri-

tionally at risk” due to “potential for dehydration,”

inadequate food intake, and low body weight. CMS

Ex. 23, at 1. According to Timm, Resident 12 did not

like to be bothered by staff to eat at or between

meals, and although she had talked with him about

“drinking more fluids to avoid dehydration and

weak/confused feelings,” he “did not appear to care

much.” Jd.

Treatment notes indicate that the nursing staff

regularly encouraged Resident 12 to drink fluids.

CMS Ex. 23, at 1. The notes also indicate that he had

a strong personality and sometimes became upset or

agitated when he was encouraged to do things he did

not want to do. Jd. Timm cited his dementia and

depression as factors that impaired his willingness to

consume adequate food and liquids. CMS Ex. 21, at 3-

At some point between January 6 and 10, 2001,

Park Manor completed a comprehensive assessment

of Resident 12. See CMS Exs. 18-19. The apparent

reason for the assessment was that Resident 12 had

experienced a “significant change in status.” CMS Ex.

App. 66

18, at 1 (item 8). As part of the assessment, Timm

reviewed Resident 12’s nutritional status, noting that

he had suffered a 9.2% weight loss over the past

month “despite all staff efforts to encourage increased

intake.” CMS Ex. 21, at 3. She estimated his fluid

needs at 1500 cc. per day and wrote that “[f]luid

intake is often poor, causing potential for dehydra-

tion.” Id. at 3-4.

The regulations require that a comprehensive

assessment be completed using the “resident assess-

ment instrument” (RAI) specified by the state. 42

C.F.R. § 483.20(b)(1). The RAI used here was the

“CMS-designated” RAI, consisting of three basic

components: the Minimum Data Set Version 2.0

(MDS), the Resident Assessment Protocols (RAPs),

and the RAI Version 2.0 Manual (RAI Manual). 42

C.F.R. § 483.15. In states using this RAI, a facility

must complete an MDS form (CMS Ex. 18) to collect

and report information about the resident’s functional

capacity and then use RAP guidelines to identify and

assess problems that might require care planning

(CMS Ex. 19). Id. The RAPs address a minimum of 18

“domains,” each covering a broad subject related to

patient health, well-being, or treatment; one of these

domains is “dehydration/fluid maintenance”. 42 C.F.R.

“ According to a CMS exhibit, Timm’s review of Resident

12’s status was recorded on January 4, 2001. CMS Ex. 21, at 3.

The heading that precedes her review states: “DIETICIAN

NOTE: SIGNIFICANT CHANGE IN CONDITION ASSESS-

MENT.” Jd.

App. 67

§ 483.315(f). A problem is targeted for evaluation or

assessment under a particular RAP based on certain

“trigger” conditions identified in the MDS or else-

where.

In section J of the MDS form, the facility is

instructed to note any “indicators of fluid status” that

manifested themselves during the previous seven

days (unless a different time frame is indicated). CMS

Ex. 18, at 3. One of these indicators is “Dehydrated;

output exceeds input.” Jd. Another “fluid status”

indicator is “Insufficient fluid; did NOT consume

all/almost all liquids provided during LAST 3 DAYS.”

CMS Ex. 18, at 3.

In January 2001, Park Manor completed a MDS

form as part of Resident 12’s comprehensive assess-

ment. CMS Ex. 18, at 5. In that form Park Manor did

not check the “Dehydrated; output exceeds input”

indicator in section J. Jd. at 3. Nor did it check the

“Insufficient fluid” indicator. /d.

In addition to completing the MDS form, Park

Manor prepared a “Resident Assessment Protocol

[RAP] Summary” for Resident 12. CMS Ex. 19. This

RAP summary lists the 18 RAP “problem areas”

(including “dehydration/fluid maintenance” and

“nutritional status”) and indicates which areas were

“triggered” as requiring further assessment. CMS Ex.

19. According to this RAP summary, nutritional

status was a triggered problem area, but dehydra-

tion/fluid maintenance was not. IJd., at 2

App. 68

In February 2001, Park Manor began to record

Resident 12’s fluid intake each shift.“ PM Ex. 8, at 1-

2. On February 1, 2001, Nurse Wendy Barbeln wrote

in the nurses notes that Resident 12 was showing

signs of dehydration and noted that his fluid intake

was 1140 cc. CMS Ex. 23, at 9; see also PM Ex. 8, at 1

(showing intake of 1140 cc. on the 7:00 a.m. to 3:00

p.m. shift, and 1500 cc. overall for February 1). On

February 3, 2001, another nurse wrote that Resident

12 had consumed only 120 cc. of water at supper and

that he “continue[d] to need encouragement to drink

fluids[.]” CMS Ex. 23, at 9; but see PM Ex. 8, at 1

(showing intake of 360 cc. on the 7:00 a.m. to 3:00

p.m. shift, 240 cc. on the 3:00 p.m. to 11:00 p.m. shift,

and a total intake of 1000 cc. on February 3).

On February 6, 2001, at Nurse Barbeln’s request,

Dr. Funk, the attending physician, assessed Resident

12 and “agreed that [he] was dehydrated.” CMS Ex.

23, at 9; Tr. at 172. The treatment notes indicate that

Dr. Funk instructed the nursing staff to “continue

pushing fluids” but decided not to restart IV therapy

because Resident 12 was “anxious and frustrated”

during the previous infusion and kept pulling the IV

out of his arm. CMS Ex. 23, at 9.

“ Nurse Wendy Barbeln testified that the recording of

Resident 12’s fluid intake began in January 2001, see PM Ex. 56,

1917, 20, but there is no documentary evidence that the

nursing staff gathered this information prior to February 2001.

App. 69

On March 7-9, 2001, Resident 12 had bouts of

diarrhea. CMS Ex. 23, at 10. On March 20, 2001, a

“potential for dehydration” was noted in his chart. Jd.

at 12. Resident 12’s daily fluid intake in February

and March 2001 ranged from a high of 1500 cc. to a

low of 180 cc., and in March his daily fluid intake was

consistently below 1000 cc., exceeding 600 cc. only

three times. PM Ex. 8, at 1-2.

Under the heading “alteration in nutrition,” the

plan of care in effect for Resident 12 during March

2001 addressed the problem of inadequate food intake

and consequent weight loss with specific instructions.

CMS Ex. 20, at 2. The plan of care said nothing about

Resident 12’s potential for dehydration, however. Nor

did it set any

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