Department of Health and Human Services
DEPARTMENTAL APPEALS BOARD
Civil Remedies Division
In the Case of: Department of Health and Human Services,
- v.-
Cerebral Palsy Center of the Bay Area, Respondent.
DATE: December 10, 1993
Docket No. 93-504-2
Decision No. CR295
DECISION
In a Notice of Opportunity for Hearing (Notice) dated February 1, 1993, the
United States Department of
Health and Human Services (Department) charged Respondent, Cerebral Palsy Center
of the Bay Area
(Respondent or CPCBA), with violating section 504 of the Rehabilitation Act
of 1973 (Act), as amended,
29 U.S.C. 794, and its implementing regulation at 45 C.F.R. Part 84. The Department
seeks as a remedy
termination of all federal financial assistance to Respondent.
Respondent requested a hearing. I held a hearing in San Francisco, California,
from May 3 through May 6,
1993. During this hearing, Respondent contested the Department's jurisdiction
to bring this case. On June
2, 1993, I heard testimony limited solely to this jurisdictional issue. The
parties filed posthearing briefs in
accordance with the schedule I established.
I have carefully considered the applicable law, the evidence adduced at the
hearing, the posthearing briefs,
and the proposed findings and conclusions submitted by the parties. I conclude
that the Department has
failed to prove that it has jurisdiction to bring, or I have the jurisdiction
to hear, that part of the case which
relates to Respondent's alleged discrimination against the complainant, an allegedly
qualified handicapped
person as defined by 45 C.F.R. 84.3(k), by subjecting him to discrimination
in employment, and by
denying him an employment opportunity based on the need to make reasonable accommodation,
allegedly
violating section 504 of the Act and 45 C.F.R. 84.11(a), 84.12(a), and 84.12(b).
However, I find I do
have the jurisdiction to hear the Department's allegation that Respondent's
employment application
discriminates by making an impermissible pre-employment inquiry of an applicant
regarding the existence
of a handicap or the nature or severity of such handicap, allegedly in violation
of 45 C.F.R. 84.14(a).
Furthermore, I find that Respondent's employment application discriminates against
applicants in the
manner alleged. However, I find that the Department has not proved that Respondent's
compliance with
section 504 regarding its employment application cannot be secured through voluntary
means. Thus,
pursuant to 45 C.F.R. 80.8(c), I find that there exists no basis upon which
to terminate Respondent's
federal financial assistance.
ISSUES
The issues in this case are whether:
1. I have the jurisdiction to decide if Respondentis engaging in unlawful
conduct in violation of
section 504 by:
a. Discriminating against the complainant by
subjecting him to discrimination in employment
and denying him an employment opportunity, based on the need to
make reasonable accommodation;
b. Discriminating by making an impermissible
pre-employment inquiry of an applicant regarding the existence of a
handicap or the nature or severity of such handicap;
2. Respondent is in noncompliance with section 504;
3. Respondent's compliance with section 504 can be
secured through voluntary means; and
4. There exists a basis upon which to terminateRespondent's federal financial assistance.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
1. Respondent is a California non-profit corporation, which provides programs
and services to individuals
with developmental disabilities, primarily cerebral palsy, in order to assist
these individuals in activities of
daily living, such as obtaining and maintaining employment. 1/ DHHS Ex. 12;
Tr. 112, 525, 526; R. Br. 1.
2. During the spring or summer of 1989, the Department's Office for Civil Rights
(OCR) received a
complaint against Respondent concerning the complainant's employment with Respondent,
which
employment began in April 1988 and terminated in March 1989. Tr. 90, 216; DHHS
Ex. 1 at 1, 20 at 1; R.
Ex. 6 at 1.
3. The complainant alleged that Respondent had discriminated against him on
the basis of his disability,
athetoid cerebral palsy, by failing to provide him with reasonable accommodation
to enable him to perform
the essential functions of his position as supervisor of Respondent's Adult
Development Program and that
this failure resulted in Respondent terminating his employment. DHHS Ex. 1 at
19; 5 at 1 - 3; 20 at 1; Tr.
139, 216.
4. OCR alleged that the Department had jurisdiction to investigate and sanction
Respondent under section
504 of the Act because Respondent was a sub-recipient of Departmental funds
through the California
Department of Developmental Services (DDS). DHHS Ex. 20 at 1; Tr. 90.
5. Section 504 prohibits discrimination against handicapped persons in any
program or activity receiving
federal financial assistance. Act, section 504.
6. Under the regulations, "federal financial assistance" is defined
as any grant, loan, contract (other than a
procurement contract or a contract of insurance or guaranty), or any other arrangement
by which the
Department provides or otherwise makes available assistance in the form of,
among other things, funds.
45 C.F.R. 84.3(h).
7. The regulations state that service providers whose only source of federal
financial assistance is
Medicaid should be regarded as recipients under the statute and regulation and
should be held individually
responsible for administering services in a non-discriminatory fashion. 45 C.F.R.
Part 84, appendix A,
sub-part A, definition 1.
8. Under the regulations, a "recipient" of federal financial assistance
is defined as any State or its political
subdivision, any instrumentality of a State or its political subdivision, any
public or private agency,
institution, organization, or other entity, or any person to which federal financial
assistance is extended
directly or through another recipient, including any successor, assignee, or
transferee of a recipient, but
excluding the ultimate beneficiary of the assistance. 45 C.F.R. 84.3(f).
9. Under the regulations, "Department" is defined as the Department
of Health and Human Services. 45
C.F.R. 84.3(d).
10. To be a recipient of federal financial assistance, an entity must be in
a position to accept or reject the
obligations of section 504 as part of the decision whether or not to receive
federal funds. Department of
Transportation v. Paralyzed Veterans of America, 477 U.S. 597 (1986).
11. Unless an entity knows it is receiving federal funds, an entity cannot
be a "recipient" of "federal
financial assistance," because it is not in a position to accept or reject
those federal funds. Finding 10.
12. An entity's knowing receipt of Medicare or Medicaid payments constitutes
federal financial assistance
for the purposes of section 504, as the purpose behind these programs is to
subsidize payments to providers
of medical services for the care of the beneficiaries of those programs. Furthermore,
Congress intended
these programs to constitute federal financial assistance for the purposes of
coverage under section 504.
United States v. Baylor University Medical Center, 736 F.2d 1039 (5th Cir. 1984),
cert. denied, 469 U.S.
1189 (1985); Frazier v. Board of Trustees of Northwest Mississippi Medical Center,
765 F.2d 1278 (5th
Cir. 1985), cert. denied, 476 U.S. 1142 (1986); Jacobson v. Delta Airlines,
Inc., 742 F.2d 1202 (9th Cir.
1984), cert. dismissed, 471 U.S. 1062 (1985); 45 C.F.R. Part 80, appendix A,
paragraph 121; 45 C.F.R.
Part 84, appendix A, sub-part A, definition 1.
13. Respondent did not object to the Department's jurisdiction during OCR's investigation. Tr. 904.
14. An OCR investigational office record made by Michael Aguirre, then an OCR
investigator, noted that
on August 8, 1989, Mr. Aguirre allegedly had a phone contact with Respondent's
Executive Director,
James E. Gallagher. The note reflects that Mr. Gallagher allegedly confirmed
that Respondent received
federal funds from two California State agencies, DDS and the Department of
Rehabilitation (DR). Also,
Mr. Aguirre noted that Respondent received $422,000 in funding from the Department's
Office of Human
Development Services (OHDS) through DDS. DHHS Ex. 28.
15. Respondent, through the declaration and testimony of its Executive Director,
Mr. Gallagher, has
denied that Mr. Gallagher advised OCR in August 1989 that Respondent had received
federal funds during
1988 and 1989 or that it ever applied for any federal program development grant
funds during this period.
R. Ex. 15; Tr. 904 - 908.
16. There is no evidence of record showing that, during the investigation,
OCR made any effort to verify
the factual basis supporting its alleged jurisdiction over Respondent through
documentary evidence, or
sought a written admission by Respondent.
17. OCR investigated the complaint and found that Respondent had discriminated
against the complainant
by failing to provide him with reasonable accommodation and by terminating his
employment. DHHS Ex.
20 at 1; Tr. 90, 91.
18. OCR found also that Respondent's employment application included a prohibited
pre-employment
inquiry. DHHS Ex. 20 at 1; Tr. 90, 91.
19. OCR was unable to negotiate a voluntary settlement with Respondent. Notice
6 - 8; Answer 4, 5; Tr.
91.
20. On February 1, 1993, the Department initiated enforcement proceedings against
Respondent by issuing
the Notice.
21. The Notice alleged that Respondent received federal financial assistance
from the Department via
DDS, and that DDS received these funds from the Department's OHDS. The Department
specifically
alleged that, in 1989, the period during which the Department alleged the discrimination
occurred,
Respondent received $422,000 in Departmental funds. Notice 4.
22. The jurisdictional allegation in the Notice contains the identical factual
basis that was developed
during OCR's investigation of Respondent. Finding 14, 21.
23. In its Answer, Respondent admitted that it had received the federal financial
assistance alleged in the
Notice. Answer 2.
24. During the hearing, Respondent asked that its admission regarding its receipt
of federal financial
assistance be withdrawn, because its own investigation had revealed that it
did not receive federal financial
assistance from the Department or from any other federal agency. Tr. 223, 224,
226, 230, 231.
25. Lack of subject matter jurisdiction:
a. May be raised at any time during a proceeding,even on appeal and even by
the party who
invoked thefederal jurisdiction in the first place;
b. Cannot be cured;
c. Requires dismissal of the action.
Fed. R. Civ. P. 12(h)(3); American Fire & Casualty Co. v. Finn, 341 U.S.
6, 16 - 18 (1951); May Dept.
Store v. Graphic Process Co., 637 F.2d 1211, 1216 (9th Cir. 1980); Insurance
Corp. of Ireland, Ltd. v.
Compagnie des Bauxites de Guinee, 456 U.S. 694, 702 (1982).
26. During the May 6, 1993 hearing, it was alleged by a former DR employee
that Respondent received
Departmental funds when DR reimbursed Respondent under the Career Opportunity
Development (COD)
program for part of the complainant's training at CPCBA. The employee alleged
that the COD program
received federal matching funds. Tr. 730, 731, 747 - 750; DHHS Ex. 1 at 29.
27. During the June 2, 1993 hearing, the Department admitted that the federal
matching funds under the
COD program came from the Department of Education (ED), not from the Department.
The Department
further conceded that, based upon review of the federal financial assistance
received by Respondent during
the period of the alleged discrimination, the jurisdictional amount set forth
in the Notice was incorrect. Tr.
840 - 842, 844.
28. During the June 2, 1993 hearing, the Department
amended the jurisdictional allegation in the Notice by offering evidence to
support its contention that other
federal financial assistance was provided to Respondent. Specifically, the Department
alleged that, during
the time the complainant was employed, Respondent was a recipient of federal
financial assistance under
the Medicaid waiver program. Tr. 840, 841, 844; DHHS Ex. 24 at 10.
29. A Medicaid waiver is an optional benefit for which a State may apply in
order to obtain federal funds.
Tr. 868; Social Security Act, section 1915(c).
30. Section 1915(c) of the Social Security Act authorizes the Secretary to
waive certain Medicaid
statutory limitations in order to enable states to provide a broad array of
approved home and community-
based services (except for room and board) to individuals who, without these
services, would require the
level of care provided in a hospital or a nursing or intermediate care facility.
Social Security Act, section
1915(c); DHHS Ex. 24 at 4.
31. On November 1, 1982, California's request to provide home and community-based
services to
individuals with developmental disabilities was approved by the Department,
effective retroactive to July
1, 1982. DHHS Ex. 24 at 4.
32. Respondent receives 66 to 70 percent of its funding as fee-for-services
from DDS and DR, primarily
via the Regional Center of the East Bay (RCEB), a non-profit corporation set
up under the Lanterman Act.
R. Br. 1; Tr. 437, 438.
33. The Lanterman Act embodies California's statutory scheme for the provision
of services to
developmentally disabled persons. Its purpose is to provide a single point of
coordination for services to
California residents with developmental disabilities. Tr. 864; R. Rep. Br. 1.;
Cal. Welf. & Inst. Code,
4500 et seq. and 4600 et seq.
34. The Lanterman Act requires that California establish regional centers to
carry out its responsibilities to
the developmentally disabled and that it contract with private, nonprofit community
agencies to provide
these services. Cal. Welf. & Inst. Code, 4620.
35. DDS is the State agency charged with carrying out this legislative mandate.
DDS contracts annually
with 21 regional centers (which are private, non-profit corporations, not State
agencies) throughout
California, which regional centers include the RCEB. Tr. 862 - 865; R. Rep.
Br. 2.
36. The regional centers submit monthly invoices to DDS so that the centers
can pay both their own
overhead and the vendors with whom they contract to provide services to handicapped
individuals. Tr.
863, 865, 874.
37. The regional centers perform an in-depth assessment of each client to determine
the client's needs.
During this assessment, the regional center makes a determination as to whether
a client is eligible for the
Medicaid waiver program. DHHS Ex. 24 at 2, 8.
38. The regional centers must provide individual program plans for each of
their clients. The regional
centers may contract with other agencies to provide program coordination, and
may also contract with
other agencies to provide other client services. Cal. Welf. & Inst. Code,
4646, 4648.
39. DDS keeps a master eligibility file of those individuals whom the regional
centers have found to be
eligible for the Medicaid waiver program. Tr. 871.
40. When DDS receives an invoice from a regional center, it extracts the cost
of the Medicaid waiver
services associated with those identified individuals and creates an invoice
to California's Department of
Health Services (DHS), the State agency responsible for administering the Medicaid
program in California.
Tr. 871, 872; DHHS Ex. 24 at 8.
41. DHS checks the individual clients against its master eligibility file.
DHS then puts this information
into a claims schedule which goes to the California State Controller for payment.
The Controller issues a
check to DDS. Tr. 872; DHHS Ex. 24 at 8.
42. The check issued to DDS is a draw-down from the DHS health care deposit
fund and constitutes
federal reimbursement under the Medicaid waiver program for 50 percent of a
regional center's invoice for
eligible individuals. Tr. 873 - 875.
43. The other 50 percent of DDS' reimbursement on a regional center's invoice
comes from the State
general fund. Tr. 874.
44. DDS pays the regional centers. Tr. 873, 874.
45. From 1987 through 1989, DDS could submit claims under the Medicaid waiver
program for 3,360
individuals only. During these years, the regional centers identified a greater
number of otherwise eligible
individuals, but DDS could not accommodate all of them. Tr. 875, 876.
46. RCEB contracts with vendors to provide services to its clients, who are
developmentally disabled
individuals. Tr. 865, 866; Findings 33 - 36, 38.
47. DDS does not contract with the vendors who provide services to RCEB's clients. Tr. 867.
48. Since January 1, 1976, Respondent has been an RCEB vendor providing services
to RCEB's
handicapped clients. DHHS Ex. 25.
49. The California State fiscal year covers the period of July 1 through June
30. During the State fiscal
years 1987 through 1989, Respondent received $117,573.57 from RCEB under the
Medicaid waiver
program. Half of this amount, $58,786.79, was reimbursed by the Department.
DHHS Ex. 24 at 3, 10.
50. During the term of the complainant's employment by Respondent, RCEB billed
DDS for the Medicaid
waiver program eligible clients to whom Respondent provided services. Tr. 877;
DHHS Ex. 24 at 10.
51. DDS reimbursed RCEB for these services. Half of the reimbursement for the
Medicaid waiver
program eligible clients came from the federal Medicaid funds DDS received.
Tr. 880 - 886; DHHS Ex.
24 at 2, 3, 10 - 26.
52. During the term of the complainant's employment by Respondent, if DDS did
not receive the federal
matching funds under the Medicaid waiver program, it would not have to pay RCEB
the entire amount of
RCEB's invoice for the services it purchased for its Medicaid waiver program
eligible clients. Tr. 887 -
888.
53. During the term of the complainant's employment by Respondent, the contracts
between RCEB and
vendors providing services to RCEB's handicapped clients did not refer to Medicaid
eligibility or to
possible federal reimbursement. Tr. 919, 920; R. Ex. 16.
54. Prior to 1992, vendors providing services to RCEB did not have to sign
a Medi-Cal (the California
Medicaid program) provider agreement claims certification. Respondent did not
sign such a certification
agreement until July 31, 1992. Tr. 886; DHHS Ex. 26, 27.
55. In the claims certification, the provider acknowledges, among other things,
that payment will be from
"federal and/or state funds", "services are offered and provided
without discrimination based on race,
religion, color, national or ethnic origin, sex, age, or physical or mental
disability" and it will be an
"enrolled Medi-Cal provider of home and community based waivered services."
DHHS Ex. 26, 27.
56. Since all Medicaid waiver program eligibility determinations and billings
are handled through the
regional centers, until the time that service providers were required to sign
the certification agreement in
1992, service providers such as Respondent were not necessarily aware that their
clients were in the
Medicaid waiver program or that federal funds were providing one- half of the
reimbursement for the cost
of their services. Tr. 893 - 895, 919 - 921; DHHS Ex. 24 at 2; R. Ex. 16 at
2.
57. Respondent offered no evidence to show that it had a procurement contract
with RCEB or that it was
reimbursed in an amount equal to the fair market value of its services.
58. The Medicaid waiver program was intended by Congress to be federal financial
assistance and thus
subject to section 504 of the Act. Findings 6, 12, 29, 30.
59. The Department has not proven that Respondent knew that, prior to July
1992, it was in receipt of any
federal funds. Respondent reasonably could have assumed that its reimbursement
for services from RCEB
and DDS consisted solely of funds from California. Tr. 904 - 908; R. Ex. 15;
Finding 53 - 56.
60. Respondent is a recipient of Medicaid waiver program funds as defined in
45 C.F.R. Part 84, appendix
A, sub-part A. Findings 7, 8, 50, 51.
61. The Department did not prove that Petitioner knew a) it was to be paid
for its services with federal
Medicaid waiver program funds and b) it was therefore in a position to accept
or reject the obligations of
section 504 as part of its decision whether or not to receive federal funds.
Findings 1 - 60.
62. Respondent is not a "recipient" of federal financial assistance.
Findings 1 - 61.
63. As Respondent is not a "recipient" of federal financial assistance
with regard to the Department's
allegation of discrimination against the complainant, I am without jurisdiction
to adjudicate this allegation.
64. After July 31, 1992, Respondent knew it was in receipt of Departmental
funds and was in a position to
accept or reject the obligations of section 504 as part of the decision whether
or not to receive federal
funds. Findings 10, 54, 55.
65. With regard to Respondent's employment application and the Department's
allegation that Respondent
makes an impermissible pre-employment inquiry of an applicant regarding the
existence of a handicap or
the nature or severity of such handicap in violation of 45 C.F.R. 84.14(a),
Respondent utilized an
impermissible employment application after signing the certification agreement
in 1992. R. Ex. 1.
66. I have jurisdiction to hear and decide the Department's allegation against
Respondent with regard to
Respondent's employment application. Findings 8, 10, 64, 65.
67. The section 504 regulations apply to pre-employment inquiries. 45 C.F.R. 84.14(a).
68. The regulations provide that a recipient of federal financial assistance
may not conduct a pre-
employment medical examination or make a pre-employment inquiry of an applicant
as to whether the
applicant is a handicapped person or as to the nature or severity of a handicap.
45 C.F.R. 84.14(a).
69. The regulations allow a recipient of federal financial assistance to make
a pre-employment inquiry into
an applicant's ability to perform job-related functions. 45 C.F.R. 84.14(a).
70. The employment application submitted by the complainant asked the complainant,
"Do You Have A
Disability, A Handicap or A Medical Condition That Limits Your Job Performance?"
The application
required the complainant to check yes or no. DHHS Ex. 1 at 7.
71. The Department determined that this pre-employment inquiry violated section
504. The Department
asserts that only inquiries regarding an applicant's ability to perform specific
job tasks are acceptable under
section 504. 45 C.F.R. 84.14(a); 45 C.F.R. Part 84, appendix A, sub-part B,
paragraph 18; Tr. 93, 94;
Notice 6.
72. Since 1989, Respondent's employment application has asked an applicant,
"Are you physically or
otherwise unable to perform the duties of the job for which you are applying?"
The application requires an
applicant to check yes or no in response. R. Ex. 1 at 4; DHHS Ex. 3 at 4.
73. The Department determined that this revised application did not meet the
Department's requirements,
as it was overly broad and too general. Specifically, it does not offer an applicant
sufficient information to
allow the applicant to answer whether the applicant could perform the essential
functions of the job. Tr.
92, 93, 95.
74. The Department, through the testimony of OCR employee Virginia Apodaca
indicated that
Respondent's 1989 employment application form would comply with section 504
if a description of the
job's duties was either attached to the application form or handed to an applicant
during the application
process. Tr. 96, 105, 106.
75. Respondent attempted to submit a new application with its response brief,
which application purported
to correct the deficiencies of the 1989 employment application as outlined by
the Department. R. R. Br.
appendix 3.
76. In this attempt to correct its employment application, Respondent added
the notation "(See attached
job specifications)" after the question "Are you physically or otherwise
unable to perform the duties of the
job for which you are applying." Respondent supported this revised application
with the declaration of
James E. Gallagher. R. R. Br. appendix 3.
77. As Respondent submitted the revised employment application and the declaration
of James E.
Gallagher supporting that revised application after the evidentiary record in
this case closed, I am not
admitting this evidence. Findings 75, 76.
78. Respondent's current employment application discriminates against applicants
in the manner alleged.
Findings 72, 73.
79. Respondent is willing to change its employment application in order to
comply with section 504.
Answer 4; Tr. 108, 109; R. Br. 13; R. R. Br. 1, 2, 23.
80. The Department has not proved that Respondent's compliance with section
504 cannot be secured
through voluntary means. Finding 79; 45 C.F.R. 80.8(c).
81. Until the Department proves that Respondent's compliance with regard to
the employment application
cannot be secured through voluntary means, there exists no basis upon which
to terminate Respondent's
federal financial assistance. Finding 80; 45 C.F.R. 80.8(c).
DISCUSSION
The purpose of section 504 of the Act is to ensure that no federal funds be
used to support discrimination.
Thus, the Department's enforcement authority under the Act is limited to programs
or activities that receive
federal financial assistance. Here, the Department alleges that Respondent is
a recipient of federal financial
assistance and is subject to its enforcement authority under section 504. The
Department alleges further
that Respondent, an organization whose mission is to assist developmentally
disabled individuals, primarily
those with cerebral palsy, in their lives and in their employment, has discriminated
against a
developmentally disabled employee with cerebral palsy (the complainant), by
denying him the reasonable
accommodation necessary to maintain his employment. The Department alleges also
that the employment
application Respondent uses makes an impermissible pre-employment inquiry.
These are serious allegations, especially as they are made against an organization
whose very reason for
existence is to help individuals such as the complainant live more independently
and maintain employment.
Both the Department and the Respondent have expended much effort establishing
their respective positions
regarding the underlying allegations of discrimination in this case. However,
for me to adjudicate all of the
Department's allegations against Respondent, I must find that I have the jurisdiction
to hear those
allegations. Here, for the reasons discussed below, I have found that my jurisdiction
is limited and that the
only allegation I can consider is whether or not Respondent's employment application
contains an
impermissible pre-employment inquiry.
My inability to consider the allegation of Respondent's discriminatory treatment
of the complainant,
however, does not mean that I have found that Respondent did not discriminate
against the complainant. If
I had the authority to adjudicate this issue and to consider all of the evidence
in the record, I might have
found that Respondent did discriminate against the complainant. However, although
I lack the authority to
decide this issue, the parties have had the opportunity to fully litigate the
legal and factual matters
involved. A full record of this proceeding is available for the use of another
entity who may have authority
to adjudicate the issue.
Moreover, to the extent that I am prevented from making factual findings and
legal conclusions on all the
allegations of discrimination (due to the absence of subject matter jurisdiction),
I believe that the issues are
of such significance that the Department should undertake further efforts to
ascertain whether the
Department or some other regulatory agency has the authority to resolve all
of the legal and factual issues
regarding the Respondent's alleged discriminatory treatment of the complainant
under section 504.
I. SUBJECT MATTER JURISDICTION MAY BE RAISED AT ANY TIME IN A PROCEEDING.
Respondent asserts that I do not have subject matter jurisdiction to decide
whether Respondent
discriminated against the complainant or in its employment application, because
Respondent is not a
program or activity receiving federal financial assistance. Respondent asserts
further that, even though it
admitted in its Answer to the Department's Notice that it received federal funds
from the Department
(Finding 23), it should not be precluded from raising the issue of lack of subject
matter jurisdiction in this
forum. R. Br. 14, 15. I agree. Moreover, the Department does not appear to dispute
Respondent's
assertion. DHHS Br. 19.
Pursuant to both case precedent and the Federal Rules of Civil Procedure, subject
matter jurisdiction may
be raised at any time during a proceeding, even on appeal and even by the party
who invoked the federal
jurisdiction in the first place. Further, the parties cannot confer subject
matter jurisdiction by stipulation or
waiver. Thus, neither Petitioner's acquiescence in OCR's investigation, nor
its initial Answer admitting its
receipt of federal financial assistance, precludes my consideration of the issue
here. Moreover, if I find
that I lack jurisdiction of the subject matter in any aspect of this case, then
that part of the case must be
dismissed. Finding 25.
II. I AM WITHOUT AUTHORITY TO DECIDE WHETHER RESPONDENT DISCRIMINATED
AGAINST THE COMPLAINANT.
A. Factual Background
The regulations applicable to section 504 incorporate the procedural provisions
of Title VI of the Civil
Rights Act of 1964 for the filing and processing of complaints of discrimination.
45 C.F.R. 84.61. The
Title VI regulations provide that any person who believes that he or she has
been subjected to
discrimination may, personally or by a representative, file a written complaint
with the Department. 45
C.F.R. 80.7(b). Pursuant to this regulation, the complainant timely filed a
complaint. The complainant
alleged that Respondent had discriminated against him on the basis of his handicap,
athetoid cerebral palsy,
by failing to provide him with reasonable accommodation to enable him to perform
the essential functions
of his position as supervisor of Respondent's Adult Development Program and
that this failure resulted in
Respondent's termination of his employment. Finding 3. OCR, basing its authority
on Respondent's
alleged receipt of federal financial assistance, investigated this complaint
and found that Respondent had
denied the complainant reasonable accommodation and that Respondent's denial
had resulted in the
complainant's termination. Findings 17, 21. OCR found also that Respondent's
employment application
included a prohibited pre-employment inquiry. Finding 18. OCR attempted to negotiate
a voluntary
settlement with Respondent, but was unable to do so. Finding 19. The Department
then initiated
enforcement proceedings against Respondent. The case was assigned to me for
hearing and decision. I
scheduled a hearing to begin on May 3, 1993 in San Francisco, California.
During OCR's investigation of the complainant's allegations, Respondent never
objected to OCR's
jurisdiction to investigate the complaint. Finding 13. Furthermore, after the
Department notified
Respondent that it had initiated enforcement proceedings, Respondent admitted
that it had received the
federal financial assistance described in the Department's Notice. Finding 23.
However, on the first day of
the hearing, Respondent raised a question as to whether it had, in fact, been
a recipient of federal financial
assistance. Respondent asked permission to withdraw its admission regarding
its receipt of federal
financial assistance, because its investigation revealed that it did not receive
federal financial assistance
from the Department or from any other federal agency. Finding 24. On June 2,
1993, I heard testimony
limited to this issue only.
The Department initially based its jurisdiction in this case on an investigational
office record (DHHS Ex.
28) which purports to represent an August 8, 1989 telephone interview between
an OCR investigator,
Michael Aguirre, and James Gallagher, Respondent's Executive Director. Tr. 342.
(During the term of the
complainant's employment, Mr. Gallagher was Respondent's Assistant Director.
Tr. 343.). Mr. Aguirre's
note alleged that Mr. Gallagher had confirmed that Respondent received "federal
monies" through DDS
and DR. Mr. Aguirre's note alleged specifically that Respondent received $422,000
from the Department's
Office of Human Development Services via DDS. Finding 14. Apparently based on
this alleged admission
by Respondent, OCR never made any further effort to establish the existence
of subject matter jurisdiction
through documentary evidence, including a written admission by Respondent. In
fact, the allegation of
subject matter jurisdiction contained in the Notice was based solely on Mr.
Aguirre's investigative report.
Findings 16, 21, 22.
At the June 2, 1993 hearing, Mr. Gallagher testified that he did not recall
participating in a telephone
interview with Mr. Aguirre. The investigational office record (DHHS Ex. 28)
did not refresh Mr.
Gallagher's recollection of such an interview. Finding 15; Tr. 907, 908. Although
the Department asserted
that it was offering DHHS Ex. 28 both to refresh Mr. Gallagher's recollection
and for the truth of its
contents, the Department offered no evidence to substantiate the truth of the
assertions in DHHS Ex. 28. In
response to my inquiry as to whether Mr. Aguirre was available to respond to
Mr. Gallagher's claim that he
did not make the statements attributed to him in DHHS Ex. 28, the Department
indicated that Mr. Aguirre
was no longer employed by the Department and was "unavailable." Tr.
906. The Department could
authenticate only that DHHS Ex. 28 was prepared in connection with the Department's
investigation of
Respondent. Tr. 924 - 929. As to the accuracy of the contents of DHHS Ex. 28,
the Department admitted
that it could not substantiate Respondent's receipt of $422,000 in federal financial
assistance. Finding 27.
Despite this, the Department requested that I consider DHHS Ex. 28 at least
as evidence that Respondent
knew it was in receipt of federal funds, even if Respondent did not know the
amount or particular source of
those funds. Tr. 921, 922. 2/
During the June 2, 1993 hearing, the Department asserted for the first time
that Respondent was a recipient
of federal financial assistance under the Medicaid waiver program. 3/ The Department
asserted further
that Respondent received this federal financial assistance through RCEB, an
entity established under
California's Lanterman Act. Tr. 840, 841, 844; DHHS Ex. 24. Finding 28.
B. Medicare, Medicaid, and the Lanterman Act
Congress enacted the Medicare and Medicaid programs as a means to assure that
the aged, disabled and
poor could secure necessary medical services. Baylor, 736 F.2d at 1044; Social
Security Act, Titles XVIII,
XIX. Under the Medicare program, the federal government pays for medical treatment
for the aged and
disabled. Under the Medicaid program, the federal government provides funds
to States which, under
federally approved State plans, use those funds to subsidize medical services
for their poor and
disadvantaged citizens. Section 1915(c) of the Social Security Act authorizes
the Secretary to waive
certain Medicaid requirements in order to enable a State to offer home and community-based
care to
eligible individuals in lieu of institutional placement. Findings 29, 30.
California's process for identifying developmentally disabled individuals who
are eligible to receive
funding under the Medicaid waiver program is governed by the Lanterman Act,
which provides for the
coordination of services to California residents with developmental disabilities.
The Lanterman Act
requires California to establish regional centers to carry out this responsibility.
The Lanterman Act
requires further that California (through DDS, a State agency charged with carrying
out this legislative
mandate) contract with private, non-profit community agencies to provide these
services, as the California
legislature had found that the service to be provided individuals and their
families by the regional centers
was of such a special and unique nature that it could not be provided by State
agencies. Findings 33 - 35.
DDS has contracted with 21 regional centers, including RCEB. These regional
centers are required to
perform in-depth assessments of each of their clients to determine each client's
needs. The regional
centers determine also whether a client is eligible to receive Medicaid waiver
program funds. The regional
centers are required further to set up individual program plans for each of
their clients. The regional
centers can subcontract with other entities to provide program coordination
or other services to their
clients. To receive payment under the Medicaid waiver program for its eligible
clients, a regional center
will invoice DDS. If the regional center has been billed by a subcontractor,
such as Respondent, for
services to clients deemed eligible for Medicaid waiver program services, the
regional center will base its
claim for that client on the subcontractor's bill. Findings 35 - 38.
When DDS receives an invoice from a regional center, it extracts the cost of
the Medicaid waiver program
services and creates an invoice to DHS. DHS checks the individual clients RCEB
invoiced against its
master eligibility list and sends the claim to California's Controller for payment.
The Controller pays DDS
with a check which is a draw-down from the DHS health care deposit fund, which
check constitutes federal
reimbursement for 50 percent of a regional center's invoice for its eligible
clients. The other 50 percent of
the invoiced amount comes from the State general fund. DDS reimburses the regional
center for its costs
for these individuals and the regional center pays service providers such as
Respondent. 4/ Findings 36, 40
- 44, 46.
C. Federal Financial Assistance
Before deciding whether or not Respondent received federal financial assistance
in the form of Medicaid
waiver program funds, I must first determine whether such funds constitute federal
financial assistance.
Although Respondent's principal arguments concern its assertion that it was
not a recipient of federal
financial assistance under the Medicaid waiver program, Respondent appears to
argue also that Medicaid
waiver program funds do not constitute federal financial assistance. R. Br.
23, 25, 26; R. R. Br. 13, 14.
While I have not found any case precedent specific to the Medicaid waiver program
itself, there is case
precedent regarding Medicare and Medicaid generally which holds that Medicare
and Medicaid payments
constitute federal financial assistance subjecting the recipient of those funds
to section 504 of the Act.
Baylor, 736 F.2d 1039. Finding 12. Since the Medicaid waiver program is a part
of the larger Medicaid
program as set out in Title XIX of the Social Security Act, and because Medicaid
has been construed as
federal financial assistance, it follows logically that an entity's receipt
of Medicaid waiver program
payments also constitutes federal financial assistance.
In finding that Medicaid waiver program payments constitute federal financial
assistance, I am guided by
the Fifth Circuit's decision in Baylor. In Baylor, the Department received a
complaint that the Baylor
University Medical Center (hospital) refused to allow a deaf patient to bring
an interpreter into the hospital
so that she could understand her pre and post-operative discussions with the
medical staff. The Department
further informed the hospital that, as a recipient of federal financial assistance,
it was obliged to comply
with section 504 of the Act. After investigation, the Department found that
the complaint merited an on-
site review. The hospital responded that it was not a recipient of federal financial
assistance for the
purposes of section 504. The hospital stipulated that it received Medicare and
Medicaid funds, but argued
that these funds did not constitute federal financial assistance. The Baylor
court found that an entity's
receipt of such payments constituted federal financial assistance. The court
based its determination (that
Medicare and Medicaid payments constitute federal financial assistance for the
purposes of section 504) on
the legislative history of the statutes prohibiting discrimination in federally
funded programs, judicial
interpretations of those statutes, and the regulations adopted pursuant to those
statutes and decisions.
Specifically, the court found that the language and legislative history of the
Act made clear that Congress
intended that Medicare and Medicaid constitute federal financial assistance
for the purposes of section 504.
The court quoted from a House Committee report, which stated:
[I]t has always been clear the Medicare and Medicaid
funds constitute Federal financial assistance. The
Committee wishes to reaffirm that health carefacilities and other providers
that receive Medicare
and Medicaid funds are required, under existing
statutes and long-standing Department of Health and
Human Services regulations and interpretations, to
provide services without discrimination not just to
Medicare and Medicaid beneficiaries, but to all
patients.
Baylor, 736 F.2d at 1045-46, citing H.R. Rep. No. 442, 98th Cong., 1st Sess. 77 (1983).
The Baylor court stated also that five of six courts which had considered the
issue previously, including a
district court case which was affirmed on appeal, held that Medicare and Medicaid
invoked the protection
of the federal discrimination statutes. Moreover, the court accorded "great
weight" to the regulatory
interpretation of the statute.
Departmental regulations define "federal financial assistance" as
any grant, loan, contract (other than a
procurement contract or a contract of insurance or guaranty), or any other arrangement
by which the
Department provides or otherwise makes available assistance in the form of funds.
Finding 6. The
Department included among those receiving federal financial assistance service
providers whose only
source of federal financial assistance is Medicaid. The Department states further
that, under the Act and
the regulations, providers receiving Medicaid funds should be held individually
responsible for
administering services in a non-discriminatory fashion. 45 C.F.R. Part 84, appendix
A, sub-part A,
definition 1. Thus, under the Department's regulations, the receipt of Medicaid
funds does not constitute a
procurement contract or a contract of insurance or guaranty potentially absolving
an entity's receipt of
federal funds from the obligations of section 504. Rather, under the Department's
regulations, the receipt
of funds under the Medicaid program binds an entity to the obligations of section
504.
The Baylor court's interpretation that an entity's receipt of Medicare and
Medicaid payments constitutes
federal financial assistance was followed in the case of Frazier v. Board of
Trustees of Northwest
Mississippi Medical Center, 765 F.2d 1278 (5th Cir. 1985), cert. denied, 476
U.S. 1142 (1986), which held
that, as a hospital receiving Medicare and Medicaid payments, Northwest was
prohibited from
discriminating against otherwise qualified individuals based on their handicap.
Frazier, 765 F.2d at 1289.
Respondent argues that Baylor and Frazier are not controlling here (R. R. Br.
13) and that payments under
the Medicaid waiver program do not constitute federal financial assistance subjecting
a recipient to the
obligations of section 504. R. Br. 23. Respondent distinguishes Baylor and Frazier
by relying on the
decision of the Ninth Circuit in Jacobson v. Delta Airlines, Inc., 742 F.2d
1202 (1984), cert. dismissed, 471
U.S. 1062 (1965). 5/
Jacobson did not directly address whether the receipt of Medicare or Medicaid
funds constitutes federal
financial assistance. It did involve, in part, an analysis of whether funds
provided to Delta through various
governmental programs were a subsidy or payment for services at fair market
value. Respondent argues
that, under Jacobson, Congress intended federal financial assistance to include
grants and subsidies but not
to include compensation for the fair market value of services provided. Respondent
cites several cases in
support of this proposition. See, DeVargas v. Mason & Hanger-Silas Mason
Co., Inc., 911 F.2d 1377
(1990); Mass v. Martin Marietta Corp., 805 F. Supp. 1530 (D. Colo 1992); Tanberg
v. Weld, 787 F. Supp
970 (D. Colo 1992). Respondent argues further that Medicaid waiver program funds
constitute
compensation payments for services and do not constitute a subsidy. R. Br. 24,
25. Respondent's briefs do
not specify whether Respondent is arguing that such payments would or would
not constitute a subsidy to
the State. Taking the more inclusive view, I am thus assuming that Respondent's
argument encompasses
the argument that the federal funds the State received under the Medicaid waiver
program are
compensation for services provided and that they do not constitute a subsidy.
Specifically, in Jacobson, a handicapped individual brought suit challenging
Delta's policy requiring that
handicapped individuals sign medical release forms acknowledging that they might
be removed from a
flight for specified reasons. The court found that for the purposes of section
504, Delta was not a recipient
of federal financial assistance under a program or activity receiving the federal
financial assistance. 6/ In
analyzing whether Delta's receipt of federal funds for the carriage of mail
caused section 504 obligations to
apply to Delta, the court concluded that any funds Delta received were at fair
market value or below, and
thus merely constituted compensation for services rendered. Therefore, Delta
did not receive federal
financial assistance. The court indicated also that "payments that include
a subsidy constitute 'federal
financial assistance'." In deciding that "purely compensatory payments
do not constitute federal financial
assistance", the court relied on old Departmental regulations which excepted
from federal financial
assistance those procurement contracts with the government in which the goods
and services are sold at
"fair market value." But, more importantly, the court indicated that
determining application of section 504
on economic issues such as fair market value would result in "[h]ighly
divergent holdings on which
programs are subject to the civil rights laws...." Rather than focusing
on fair market value as the
determining factor in deciding which programs are subject to civil rights laws,
the court indicated that the
focus should be on "the intention of the government." The court further
stated
[I]n short, the question of which programs aresubject to the civil rights
laws is a question oflaw, to
be answered in most cases by reference tothe statutory authority for the particulardisbursements
at issue or,
if the authority toprovide assistance has been delegated, to therelevant administrative
documents.
In examining the various sources of federal funds provided to Delta to determine
whether those federal
funds constituted federal financial assistance, the court relied on either Civil
Aeronautics Board (CAB) or
congressional interpretations as to whether the funds were a subsidy subjecting
Delta to the Act.
Respondent misapplies the lessons of Jacobson. The court indicated specifically
that it did not want to
make an economic evaluation of the contractual terms of the relationship between
Delta and the federal
government to determine whether any funds received were a subsidy or a procurement
contract for services
at fair market value. Instead, it examined the intent of Congress and the CAB
for each program or activity
for which Delta received federal funds to determine whether such funds constituted
federal financial
assistance. In this case, the appropriate examination applying Jacobson is whether
Congress intended that
Medicaid funding be deemed a subsidy to providers for the purposes of coverage
under section 504 of the
Act. Baylor answers that question in the affirmative.
Respondent concedes that Jacobson does not involve Medicare or Medicaid funding.
R. R. Br. 18. Since
the Ninth Circuit has not addressed the specific issue of whether an entity's
receipt of Medicaid funding can
trigger section 504 coverage, and the court in Jacobson rejected an economic
analysis of contractual terms
to determine the existence of federal financial assistance for purposes of applying
section 504,
Respondent's reliance on Jacobson to refute Baylor is unpersuasive. Moreover,
even assuming such an
economic analysis of contractual terms was mandated by Jacobson, I could not
conclude that the funds
RCEB paid to Respondent were at fair market value. Respondent has offered no
evidence on the specific
contractual relationship between itself and RCEB to permit me to make a determination
as to whether the
terms of compensation were at fair market value. Accordingly, I find that it
is reasonable for me to look to
other decisions regarding the nature of the Medicare and Medicaid programs to
determine whether
Congress intended these programs to constitute a subsidy.
My analysis of the Baylor decision convinces me that Congress intended that
the Medicare and Medicaid
programs subsidize the providers of medical care. Specifically, the Medicare
and Medicaid programs were
enacted to ensure that the aged, disabled, and poor receive necessary medical
services. The very nature of
the program is to subsidize the cost of providing services to such individuals
to ensure that they receive
these services. Baylor makes clear that it was the intent of Congress that Medicare,
Medicaid, and, by
extension, Medicaid waiver program funds constitute federal financial assistance
to an entity receiving
those payments.
E. Receipt of Federal Financial Assistance
Although I have found that Medicaid waiver program funding constitutes federal
financial assistance, the
question remains whether Respondent is a recipient of that federal financial
assistance. The Department
asserts that Respondent is a recipient of federal financial assistance and insists
that, by virtue of
Respondent's receipt of that federal financial assistance, I have jurisdiction
to hear this case. Respondent
disagrees, arguing generally that: 1) it is not a "recipient" of federal
financial assistance under the
Medicaid waiver program because, under this program, it is the State which is
the recipient of any funds; 2)
Congress did not intend section 504 to apply to all businesses and individuals
which benefit from federal
financial assistance; and 3) Respondent did not "receive" federal
financial assistance, because it did not
agree to be subject to section 504 as a condition of receiving federal funds.
R. Br. 14 - 23. For the reasons
set out below, I find that an entity's receipt of federal financial assistance
in the form of Medicaid waiver
program payments would trigger the application of section 504 when that entity
knew such funds included
federal financial assistance and was in a position to accept or reject such
funds and the consequential
obligations of section 504. I find further that Respondent received Medicaid
waiver program funds.
However, I find also that because there is no evidence of record that Respondent
was aware that funds
received from RCEB included funds under the Medicaid waiver program, Respondent
was not in a position
to accept or reject the obligations of section 504. Therefore, Respondent was
not a recipient of federal
financial assistance during the period at issue.
Respondent asserts that this case is governed by the Supreme Court's decision
in Paralyzed Veterans. R.
Br. 16. In that case, the Paralyzed Veterans of America, an organization representing
the disabled, sued the
Department of Transportation for failing to impose the obligations of section
504 on commercial airlines.
The organization argued that the federal government provided federal financial
assistance to airport
operators through grants from a trust fund operated by the Airport and Airway
Development Act of 1970
and by virtue of the operation of the air traffic control system. The Court
held that the starting point of any
inquiry into the application of a statute is the language of the statute itself.
In Paralyzed Veterans, the
Court held that, under the relevant statute, the recipient for the purposes
of section 504 was the operator of
the airport, not its users, the commercial airlines. The Court held further
that the scope of section 504 was
limited to those who receive the federal funding, because Congress' intent was
to impose section 504
coverage as the contractual cost of a recipient's agreement to accept federal
funds.
Thus, under Paralyzed Veterans, in order to subject a recipient to section
504 obligations, Congress enters
into an arrangement in the nature of a contract with the recipient of federal
funds. It is the recipient's
acceptance of those funds as federal funds which triggers the section 504 coverage.
The Court stated that,
by limiting coverage to recipients, Congress imposed the obligations of section
504 only upon those who
are in a position to accept or reject those obligations as a part of the decision
whether or not to receive
federal funds. The Court stated that the key to deciding whether an entity is
bound by the obligations of
section 504 is to determine whether an entity is a recipient of the assistance.
Moreover, the Court held that
the section 504 obligations do not follow the federal funds past the intended
recipient to those who merely
indirectly benefit from such federal financial assistance. The Court stated
further that any interpretation of
section 504 must respond to two countervailing considerations: the need to give
effect to the Act's
objectives and the desire to keep the Act within manageable bounds. The Court
rejected as too broad and
contrary to the intent of Congress the court of appeals' holding that an entity
was part of a federally-
assisted program or activity, not because it had received federal financial
assistance, but because it was
inextricably intertwined with an institution that had received such funds. If
that interpretation of the Act
were accepted, the Court concluded, it would subject to the coverage of section
504 every entity which
benefitted from a federal program or activity, even though it did not receive
any federal funds.
Respondent asserts that if Medicaid waiver program funding constitutes federal
financial assistance, it is
the State, not Respondent or RCEB, which is the recipient of that federal financial
assistance, and only the
State which is subject to section 504. Respondent asserts further that Paralyzed
Veterans supports
Respondent's proposition that a State submitting a State plan is the only recipient
of federal financial
assistance under the Medicaid waiver program. R. Br. 16 - 18. Respondent asserts
that the Department's
regulations support Respondent's interpretation of the scope of section 504
because federal financial
assistance provided under Medicaid lists "grants to states" as the
recipient of federal funds. Further,
Respondent asserts that, under the Medicaid waiver program, every requirement
for obtaining assurances
and obtaining State Plan approval is on the State. Social Security Act, Title
XIX. Respondent argues that
nothing in the Act requires or permits participation in the State plan by a
service provider or requires a
service provider to be aware of the existence of the State plan. Thus, Respondent
argues that, under
Paralyzed Veterans, Congress has made it clear that the federal financial assistance
is to go to States and
the recipient is the State, not the service providers. R. Br. 16 - 18; R. R.
Br. 14. I do not agree.
Respondent argues that Congress did not intend that section 504 apply to all
businesses and individuals
which might benefit from federal financial assistance. In Paralyzed Veterans,
the plaintiffs urged that the
airlines were "indirect recipients" of federal aid to airports and
were thus subject to section 504.
Respondent argues that it benefitted only indirectly from the Medicaid waiver
program funds. It was the
State which was required to apply for this program and Respondent denies that
it knew the program
existed. R. Br. 20, 21. I do not agree that Respondent is an indirect beneficiary
of Medicaid waiver funds.
Such an analysis would exclude all Medicaid providers from coverage under section
504 merely because
Medicaid funds are paid initially to States prior to distribution to providers,
such as Respondent, who
deliver medical services to the intended beneficiaries of the Medicaid funds.
To determine who actually receives federal financial assistance, the Court
in Paralyzed Veterans directs the
trier of fact to examine the purpose and intent of Congress in establishing
the program from which the
federal financial assistance flowed, in order to find out the scope and breadth
of coverage of the program
with respect to responsibility under section 504. As I found above, the purpose
of the Medicare and
Medicaid programs is to ensure that the aged, poor, and disabled have access
to medical services. With
regard to the Medicaid waiver program, Congress wanted to ensure that those
with developmental
disabilities have access to home and community based care in lieu of institutional
care. Therefore, the
purpose of the Medicaid waiver program is to subsidize payments to entities
who provide care to the
intended beneficiaries of the program -- developmentally disabled individuals.
Findings 12, 29, 30.
The State of California is certainly one recipient of this federal financial
assistance under the Medicaid
waiver program, as it is directly receiving federal funds. It is not, however,
the only recipient. Instead, I
find that, pursuant to the Lanterman Act, California acts as a conduit, funneling
Medicaid waiver program
payments to a chain of entities providing services to Medicaid waiver program
eligible individuals. While
RCEB and Respondent may be independent, non-profit corporations, they are inextricably
intertwined by
the Lanterman Act in the provision of services to individuals whom Congress
intended to benefit under the
Medicaid waiver program. The Lanterman Act set up the regional centers to ensure
that services would be
provided to enable individuals with developmental disabilities to approximate
the pattern of everyday
living available to non-disabled people of the same age. Cal. Welf. & Inst.
Code 4501, 4620.
Respondent has set up programs to assist individuals with developmental disabilities.
Finding 1. The
Lanterman Act contemplates that regional centers will use vendors, such as Respondent,
to implement its
goals. RCEB and Respondent participate as a team in providing services to developmentally
disabled
individuals, RCEB determining an individual's need for services and funneling
that individual to
Respondent for the provision of those services. Findings 37, 38, 46, 48. It
is Respondent or RCEB,
depending on who is actually providing services to a Medicaid waiver program
eligible beneficiary, which
is the recipient of those federal funds. Congress' purpose was to compensate
the entity who actually
provides services to the intended beneficiaries of the Medicaid waiver program
(disabled individuals), not
the entities channeling that payment to the entity providing services. However,
in such circumstances
those entities would be recipients under section 504.
Respondent argues, however, that under the Court's finding in Paralyzed Veterans,
it could not have
received federal financial assistance because it did not agree to be subject
to section 504 as a condition of
receiving federal funds. I agree. In Paralyzed Veterans, the Court concluded
that Congress limited the
obligations of section 504 to recipients because it intended to impose coverage
of the Act only "as a form
of contractual cost of the recipient's agreement to accept the federal funds."
By limiting coverage to
recipients, Congress imposes section 504 obligations only as part of an entity's
decision whether or not to
"receive" federal funds. The Departmental definition of recipient
makes no reference to knowledge of the
receipt of federal financial assistance (Finding 8) as a condition of coverage
under section 504. However,
while an entity such as Respondent may meet the regulatory definition of a recipient
(which definition
includes specifically the receipt of federal financial assistance by a private
agency), this is not sufficient to
impose section 504 obligations. The Court imposed an additional requirement,
that an entity be in a
position to accept or reject the federal funds, since such funds come with an
obligation to be bound by
section 504. The Court, concerned with the Act's breadth of coverage, indicates
that this quasi-contractual
analysis is appropriate as a means to confine the bounds of section 504 in a
reasonable manner.
With regard to the receipt of federal financial assistance and the breadth
of coverage of section 504, here
the chain leading to the receipt of federal financial assistance ends with Respondent.
Congress did not
intend to obligate Respondent's vendors under section 504. Vendors are too remote
from the provision of
care to the intended beneficiaries of the Medicaid waiver program. It is Respondent
who provides these
medical services.
Respondent cites Eivins v. Adventist Health System/Eastern, Etc., 651 F. Supp.
340 (D. Kan. 1987) and
Glanz v. Vernick, 756 F. Supp 632 (D. Mass. 1991) for the proposition that indirect
beneficiaries of federal
financial assistance are not bound by the obligations of section 504. The Department
cites these cases for
the proposition that an entity's receipt of Medicaid funds qualifies it as a
recipient of federal financial
assistance. I find that the holdings in these cases are consistent with the
position of the Court in Paralyzed
Veterans regarding whether an entity's receipt of federal funds constitutes
federal financial assistance.
In Eivins, the complainant was an employee of the data processing department
of a holding company for
hospitals which received federal financial assistance. The court referred to
the holding company as having
a "symbiotic relationship" with the entity receiving the federal financial
assistance and held that the holding
company was not a direct recipient of federal financial assistance. The court
stated that, before finding
such a direct relationship, the court had to be satisfied that the relationship
between the holding company
and the entity receiving assistance was of a sufficient quality to extend coverage
of the Act. In Eivins, the
holding company benefitted from such funds. However, even if the rationale of
Paralyzed Veterans is not
applied (i.e., determining who the intended recipient of the federal funds is),
the Medicaid program was not
intended to benefit such peripheral entities. In Paralyzed Veterans, the court
rejected application of section
504 to those entities who merely receive indirect economic benefits. The Eivins
court indicated further that
even if the financial and structural relationship had established that the holding
company was a recipient of
federal funds, an additional inquiry would be needed to determine whether the
federal funds had a "nexus"
to the program or activity in which the handicapped individual was participating.
In contrast to
Respondent's case, in which the Medicaid waiver program was intended to subsidize
the exact services
Respondent was providing to Medicaid beneficiaries, the activities of the holding
company were found by
the court not to be related to the hospital's receipt of federal financial assistance.
In the Glanz case, the court differentiated between a physician's participation
in Medicaid as a direct
provider and as a hospital employee. The court found that the physician would
be liable under section 504
for activities he committed while directly compensated as a Medicaid provider,
but not as a hospital
employee. The court found also that the hospital could be liable under section
504 for its employees'
actions on the theory of respondeat superior. The court agreed that under Baylor
the receipt of Medicare or
Medicaid payments for the hospital's services qualified as the receipt of federal
financial assistance.
Further, the court found that the discrimination occurred in a program or activity
-- the provision of
medical services -- in which Medicare or Medicaid payments were received. However,
the physician's
employment by the hospital was not sufficient to extend coverage of section
504 to the physician. As an
employee, the court concluded that the physician would not be in a position
to accept or reject federal
financial assistance. Respondent, like the hospital in Glanz, is the intended
recipient of the Medicaid
funds. Also, as an independent entity, Respondent, like the hospital, but unlike
the physician as an
employee, is in a position to accept or reject federal financial assistance.
The Department urges me to find that Respondent's claim that it had no knowledge
of its receipt of federal
funding is not credible. The Department argues that, although Respondent may
not have known the
specific sources of the funds constituting its receipt of federal financial
assistance, it had the general
understanding that these sources included some federal funding and thus made
Respondent subject to the
obligations of section 504. Further, the Department urges that I find that Paralyzed
Veterans does not hold
that notice is required to subject an entity to section 504 obligations. DHHS
Br. 32. I cannot make such a
finding. The Court in Paralyzed Veterans was concerned with the breadth of section
504's coverage. It
held that the Act purposely imposed a notice requirement so that an entity could
make a decision whether
or not to accept section 504 obligations. The Department has failed to demonstrate
that Respondent
possessed the requisite knowledge as set out in Paralyzed Veterans. In the absence
of proof of that
knowledge, I cannot find that Respondent is bound by the obligations of section
504.
Through Respondent's May 28, 1993 brief, the Department was put on notice that
Respondent intended to
rely on Paralyzed Veterans as an avenue by which (whether or not it had committed
the discrimination
alleged) it could avoid the obligations of section 504. During the hearing on
June 2, 1993, I put the
Department on notice that I was concerned especially with the issue of whether
Respondent had knowledge
that it was in receipt of federal financial assistance. Tr. 949. Thus, the Department
was aware that it
needed to prove such knowledge with specificity.
Respondent is in the business of providing care to developmentally disabled
individuals. Respondent knew
it was funded by State agencies, knew about the Lanterman Act, and knew about
section 504 and the
obligations imposed upon those in receipt of federal financial assistance. Perhaps
documentation exists
proving that Respondent knew also that it received federal funds. Moreover,
for those individuals eligible
for the Medicaid waiver program to whom Respondent provided services, it would
seem plausible
(considering that the Medicaid waiver program had been in effect since 1982
(Finding 31)) that RCEB
would discuss its status with Respondent and that such discussion might be evidenced
in correspondence
between RCEB and Respondent. To prove it had jurisdiction to bring this case,
the Department knew it
must prove that Respondent was in receipt of federal financial assistance. The
Department knew further
that without this proof of jurisdiction its case would fail. The Department's
initial position regarding
jurisdiction certainly was impacted by its belief that Respondent, through its
executive director (as
referenced in DHHS Ex. 28), allegedly admitted that it knew it received federal
financial assistance. The
Department relied on this exhibit in stating the jurisdictional basis for the
case in the Notice. Respondent
admitted the Department's jurisdiction over the case in its Answer. However,
when the Department was
notified on May 4, 1993 that Respondent sought to withdraw its admission concerning
the Department's
jurisdiction, the Department made no attempt to develop evidence other than
DHHS Ex. 28 to prove
Respondent knew it was in receipt of federal financial assistance (even after
I brought the importance of
the issue to the Department's attention on June 2, 1993). 7/ Respondent has
denied the truth of DHHS Ex.
28 and the Department has been unable to prove the truth of that exhibit's contents.
8/ Findings 14 - 16.
The testimony of DDS employee Walter Kealy supports Respondent's denial. Mr.
Kealy testified that a
service provider such as Respondent might not be aware that a client was in
the Medicaid waiver program
and that federal funds provided half of the reimbursement for that client's
service. DHHS Ex. 24 at 2; Tr.
at 893 - 895. Also supporting Respondent's denial, RCEB employee W. Steve Harper
testified that the
contracts between RCEB and its providers do not refer to federal reimbursements.
Tr. 919 - 921.
Thus, for the period prior to July 1992 (at which time Respondent signed the
provider certification
agreement), the Department failed to prove by a preponderance of the evidence
that it had knowledge as to
how its costs were reimbursed or that it received federal financial assistance.
9/ Finding 59. Therefore, I
find that Respondent did not have the opportunity to choose to accept or reject
the obligations of section
504. 10/ Finding 61.
F. Dismissal of the Case Regarding the Complainant's Allegations
Since I have found that Respondent did not have knowledge of its receipt of
Medicaid waiver program
funds, I find under Paralyzed Veterans that, for the period at issue, Respondent
was not a recipient of
federal financial assistance. Therefore, I dismiss that part of the Department's
case. However, had the
Department proved that Respondent had such knowledge, I would have found that
it did receive federal
financial assistance. This is because I find that Medicare and Medicaid funds
constitute federal financial
assistance and that Respondent would have been a direct recipient of those funds
as the provider of services
to the Medicaid waiver program's intended beneficiaries.
G. Authority to Make Findings Regarding the Complainant's Allegations
On September 27, 1993, I gave the parties an opportunity to brief the issue
of whether or not I still had the
authority to make findings regarding Respondent's allegedly discriminatory treatment
of the complainant,
assuming I found that the Department had no jurisdiction to proceed against
Respondent. Both parties
submitted supplemental briefs on this issue.
Respondent argued that I do not have such authority. R. Supp. Br. 2. The Department
argued that I do
have such authority. DHHS Supp. Br. 2. I agree with Respondent. For the reasons
discussed below, I find
that, once I have dismissed that part of the Department's case dealing with
the Respondent's allegedly
discriminatory treatment of the complainant, I am without authority to make
findings with regard to that
issue.
The Department argues that section 504 does not distinguish between recipients
of federal financial
assistance based on the federal agency from which the federal financial assistance
is received and thus I
have the authority to reach the merits of the complainant's allegation based
on federal financial assistance
to Respondent from any source. DHHS Supp. Br. 2, 3. The Department argues further
that here the
Department could have joined ED as a co-petitioner to prove that Respondent
was a recipient of federal
financial assistance, as authorized by section 1-207 of Executive Order 12250,
3 C.F.R. 298 (1980). 11/
DHHS Supp. Br. 3, 4. I do not agree.
While section 504 does not distinguish between the recipients of federal financial
assistance based on the
federal agency from which the federal financial assistance is received, Departmental
regulations governing
this case define the agency providing federal financial assistance as the Department
only. Finding 9. The
regulations thus limit my jurisdiction to those entities receiving federal financial
assistance from the
Department. Therefore, absent some joint prosecution with another agency where
jurisdiction based on an
entity's receipt of federal financial assistance could be proved (which joint
prosecution does not exist in
this case), I would not have jurisdiction to reach the merits. Furthermore,
although the Department alleges
that Respondent received ED funds (Findings 26, 27), it has not proved that
Respondent received ED funds
or that Respondent knew that it was in receipt of ED funds. Moreover, even if
Respondent was the
recipient of ED funds, in the absence of a joint inquiry or prosecution with
ED, the Department alone is
without jurisdiction to bring the case against Respondent.
The Department argues also that it could proceed against the State on this
complaint and force the State to
sanction Respondent. This may be true. However, that does not confer authority
upon me to make
findings. The Department stresses that my making findings of fact and conclusions
of law on the evidence
presented would be efficient and would preclude the necessity of having the
evidence presented again.
DHHS Supp. Br. 4, 7. While this may be true, it does not confer jurisdiction
upon me.
In the absence of jurisdiction, I have no case or controversy before me to
decide and I must dismiss the
case. The Department has not convinced me that it would be appropriate for me
to make findings of fact or
conclusions of law regarding the issue of the Respondent's allegedly discriminatory
treatment of the
complainant. However, in the interest of efficiency and economy, a full record
is available for the
consideration of any entity with jurisdiction to hear the case.
III. I HAVE THE AUTHORITY TO ADJUDICATE THE ISSUE OF PETITIONER'S
EMPLOYMENT APPLICATION.
On July 31, 1992, Respondent signed a provider certification agreement with
RCEB. Finding 54. In so
signing, Respondent acknowledged that it was bound by section 504. Respondent
is accused of using an
employment application the Department alleges is discriminatory. Thus, because
Respondent now knows
it is subject to section 504, I have the authority to hear the case against
Respondent as limited to the issue
of the employment application.
The Department asserts that the section 504 regulations which are applicable
to pre-employment inquiries,
45 C.F.R. 84.14(a), provide that a recipient of federal financial assistance
may not conduct a pre-
employment medical examination or make a pre-employment inquiry of an applicant
as to whether the
applicant is a handicapped person or as to the nature or severity of a handicap.
The Department
acknowledges, however, that a recipient may make a pre-employment inquiry into
an applicant's ability to
perform job-related functions. DHHS Br. 45.
Here, the Department alleged violations of section 504 in the employment application
the complainant
submitted to Respondent in 1988, as well as in a revised employment application
Respondent began using
in 1989. Findings 70 - 73; DHHS Br. 45 - 47; DHHS Rep. Br. 2, 3.
Respondent alleged that its employment application had been revised and it
is now in compliance with the
Department's requirements, which requirements were outlined in testimony presented
by the Department's
witness, Virginia Apodaca. Finding 74. Respondent sought to prove that its employment
application
satisfied the regulations by submitting a revised employment application with
its response brief. 12/
Findings 75, 76. However, I did not admit this proposed exhibit because it was
submitted after the
evidentiary record in this case had closed. Finding 77.
In its reply, the Department argues that Respondent's promise to comply with
section 504 regarding its
employment application does not moot the issue as to whether the application
includes a prohibited pre-
employment inquiry. The Department argues that the issue would be moot only
if there was no reasonable
expectation that the alleged violation would recur or if interim events completely
and irrevocably
eradicated the effects of the alleged violation. The Department asserts that
until Respondent submits a
revised employment application form to DHHS for a determination of compliance
or enters into a consent
agreement or some other legally binding assurance that it will in future use
an employment application
form complying with section 504, Respondent's mere promise to comply is insufficient
to satisfy the Act
and regulations. DHHS Rep. Br. 3. Thus, the Department seeks termination of
Respondent's federal
financial assistance on this issue and seeks to have this termination remain
in effect until Respondent
satisfies DHHS that it will comply with the applicable provisions of the regulation.
DHHS Rep. Br. 5.
IV. THERE EXISTS NO BASIS UPON WHICH TO TERMINATE RESPONDENT'S FEDERAL
FINANCIAL ASSISTANCE.
While I agree with the Department that the employment application Respondent
began using in 1989 does
not comply with Respondent's section 504 obligations, I do not agree with the
Department that there exists
a basis upon which to terminate Respondent's federal financial assistance. Prior
to terminating an entity's
federal financial assistance, the Department must prove that an entity's compliance
with section 504 cannot
be secured through voluntary means. 45 C.F.R. 80.8(c). Here, the Department
has not offered sufficient
proof to convince me that Respondent is not ready to voluntarily conform its
employment application.
Instead, the record shows that Respondent is willing, perhaps even eager, to
change its employment
application in order to comply with section 504. Finding 79. The Department
has indicated to Respondent
what it must do to comply with section 504 (Finding 74), and Respondent has
indicated that it is ready to
comply. Findings 75, 79. As Respondent has indicated its willingness to comply
voluntarily, the
Department must allow Respondent time to come into compliance. Therefore, at
this time, there exists no
basis upon which to terminate Respondent's federal financial assistance. 13/
CONCLUSION
I conclude, for the reasons cited above, that I am without authority to adjudicate
the issue of whether
Respondent discriminated against the complainant by subjecting him to discrimination
in employment and
denying him an employment opportunity based on the need to make reasonable accommodation.
I
conclude further that Respondent has engaged in unlawful discrimination in violation
of the Act by making
an impermissible pre-employment inquiry in its employment application. However,
I conclude also that
the Department has not proved that Respondent is unwilling to voluntarily comply
with the obligations of
section 504 with regard to this employment application. Therefore, there exists
no basis upon which to
terminate Respondent's federal financial assistance.
Edward D. Steinman
Administrative Law Judge
1. I refer to the Department's exhibits as "DHHS Ex. (number at page)."
I refer to Respondent's exhibits
as "R. Ex. (number at page)." I refer to the transcript as "Tr.
(page)." I refer to the parties' briefs as
"DHHS." or "R." Brief "(Br.) (page)," Response
Brief "(R. Br.) (page)," Reply Brief "(Rep. Br.) (page),"
and Supplemental Brief "(Supp. Br.) (page)." I cite the Department's
Notice Of Opportunity for Hearing as
"Notice (page)" and the Respondent's Request For Hearing and Answer
as "Answer (page)."
2. Although both Mr. Gallagher and Mr. White (a member of Respondent's Board
of Directors) testified
that they were aware of the requirements of section 504 prior to the complainant's
employment (Tr. 345 -
346, 522 - 526), neither individual testified that he knew that Respondent itself
was in receipt of federal
funds. As individuals who worked with the developmentally disabled, it is to
be expected that they would
be aware of the requirements of section 504. However, the awareness that section
504 existed does not
constitute proof that Respondent knew it was in receipt of federal financial
assistance.
3. During the hearing on May 6, 1993, a former DR employee alleged that Respondent
received
Departmental funds when it reimbursed Respondent for part of the complainant's
training. During the June
2, 1993 hearing, however, the Department asserted that these federal funds came
from ED, not from the
Department. The Department submitted no evidence to support this assertion.
Furthermore, the
Department did not allege specifically that Respondent knew that the funds it
received from DR included
federal funds. Findings 26, 27.
4. During the hearing, there was a difference in the testimony of Walter Kealy
(Chief of the Operations
Section of the Federal Programs Branch of DDS's Program Services Division) and
W. Steve Harper
(RCEB's comptroller). Under the Medicaid waiver program, DDS reimburses half
of RCEB's invoice for
eligible clients with federal Medicaid funds. Mr. Kealy testified he understood
that if these funds are
unavailable, DDS does not have to reimburse RCEB for the entire amount invoiced.
Tr. 887, 888.
However, Mr. Harper testified he understood that, even if federal funding failed,
DDS was obligated to
reimburse RCEB for the entire amount. Tr. 918, 919. I find Mr. Kealy's testimony
to be more credible.
As DDS is the entity actually reimbursing all 21 of the regional centers, I
believe that it is more likely that
DDS knew whether it would be able to reimburse the regional centers if federal
Medicaid funds were
unavailable.
5. Respondent argues further that any dispute between the courts of appeal
should be resolved by relying
on the Ninth Circuit, where Respondent resides.
6. Even though the court applied the nondiscrimination provision of section
504 to Delta through
incorporation into section 404(b) of the Federal Aviation Act, the plaintiff
in Jacobson was seeking
attorney's fees, which were available only under the Act. For this reason, the
court analyzed the
application of section 504 to Delta.
7. Rather than seeking additional time to develop evidence regarding whether
Respondent knew it was in
receipt of federal financial assistance as required under Paralyzed Veterans
(a request I likely would have
granted considering Respondent's change of position on jurisdiction), the Department
chose instead to rely
on Baylor to support its argument that Respondent was the recipient of federal
financial assistance in the
form of Medicaid waiver program funds and argued that Paralyzed Veterans was
inapplicable to this case.
8. In the Notice, the Department relied solely on DHHS Ex. 28 in establishing
jurisdiction. Subsequently,
the Department conceded that the jurisdictional amount set forth in both DHHS
Ex. 28 and the Notice was
incorrect and later modified the amount. Findings 27, 28.
9. This contrasts with the case of Hawthorne v. Kenbridge Recreation Association,
Inc., 341 F. Supp.
1382 (E.D. Va. 1972), cited by the Department. In Hawthorne, the Association
knew it was receiving
federal financial assistance and accepted that federal financial assistance
under a mistaken belief that by so
doing it would not subject itself to Title VI obligations. The key difference
between Hawthorne and
Respondent's case is that the Association had knowledge that it was receiving
federal financial assistance
and Respondent did not have that knowledge.
10. Although the Department did not rely on it, the complainant testified that
Respondent was a recipient
of federal funds. Tr. 206, 216. The complainant did not specify what the alleged
federal funds consisted
of or where the alleged federal funds came from. The Department did not offer
any evidence to support
the complainant's assertion. Thus, in the absence of any proof supporting the
complainant's assertion, I
have not relied on this testimony in making my decision.
11. The Department asserts that, if Respondent had raised the jurisdictional
issue earlier in the proceeding,
it would have been in a better position to join ED in proving that Respondent
was the recipient of federal
financial assistance. DHHS Supp. Br. 3. The Department never requested that
I grant it time specifically
to investigate whether it could join ED in proving that Respondent was the recipient
of federal financial
assistance. Moreover, I have found that the lack of subject matter jurisdiction
can be raised at any time.
Finding 25. Respondent raised the jurisdictional issue on the first day of the
hearing. I continued the
hearing to give the parties a chance to present evidence on the jurisdictional
issue. Moreover, the timing of
Respondent's assertion on jurisdiction has no bearing on whether or not, in
the absence of jurisdiction, I am
authorized to make findings on Respondent's alleged discriminatory treatment
of the complainant.
12. I have marked the revised employment application and the declaration of
James E. Gallagher which
accompanied it (R. R. Br., appendix 3) as R. Ex. 17.
13. As I have not admitted R. Ex. 17, I do not make findings based upon it.