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CASE | DECISION | ISSUES | FINDINGS OF FACT AND CONCLUSIONS OF LAW | ANALYSIS | CONCLUSION | JUDGE | FOOTNOTES

Department of Health and Human Services

DEPARTMENTAL APPEALS BOARD

Appellate Division


IN THE CASE OF  
Osceola Nursing and Rehabilitation Center
Petitioner,
Date: 1999 October 29
- v. -  
The Health Care Financing
Administration.
Civil Remedies CR595
App. Div. Docket No. A-99-91
Decision No. 1708

DECISION
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FINAL DECISION ON REVIEW OF
ADMINISTRATIVE LAW JUDGE DECISION

The Osceola Nursing and Rehabilitation Center (Osceola) appealed a May 25, 1999 decision by Administrative Law Judge (ALJ) Mimi Hwang Leahy dismissing Osceola's request for hearing. Osceola Nursing and Rehabilitation Center, DAB CR595 (1999) (ALJ Decision). Osceola had sought a hearing before the ALJ to challenge the Health Care Financing Administration's (HCFA's) denial of payments for new Medicare and Medicaid residents and HCFA's proposal to impose a civil money penalty (CMP), pursuant to sections 1819 and 1919 of the Social Security Act (Act), based on Osceola's alleged failure to comply substantially with requirements for participation in the Medicare and Medicaid programs. The ALJ found that "Petitioner has acted in disregard of my Orders on repeated occasions and over prolonged periods of time" and thereby abandoned its request for hearing. ALJ Decision at 6. Based on this determination, the ALJ dismissed Osceola's request for hearing pursuant to 45 C.F.R. � 498.69(a) and section 1128A(c)(4) of the Act.

For the reasons explained below, we reverse this dismissal and remand the case for further proceedings.

I. Standard of Review

In reviewing an ALJ decision, our standard of review on a disputed issue of law is whether the initial decision is erroneous; for a disputed issue of fact, the standard is whether the ALJ decision is supported by substantial evidence in the record. The standard of appellate review of a dismissal of a request for hearing where dismissal is committed by regulation to the discretion of the ALJ is whether the ALJ has abused his or her discretion. Cf. Rulings on Request for Removal of Hearing to Board, Rehabilitation & Healthcare Center of Tampa, Appellate Division Docket No. A-99-95 (August 16, 1999); Four States Care Center, Appellate Division Docket No. A-99-66, (June 7, 1999) (regulation specifying that an ALJ "may" dismiss means ALJ has discretion to determine whether dismissal is appropriate based on the circumstances of the case).

II. Relevant Authority.

The ALJ dismissed this case pursuant to 42 C.F.R. � 498.69, which provides:

Dismissal for Abandonment.
(a) The ALJ may dismiss a request for hearing if it is abandoned by the party that requested it.
(b) The ALJ may consider a request for hearing to be abandoned if the party or its representative--
(1) Fails to appear at the prehearing conference or hearing without having previously shown good cause for not appearing, and
(2) Fails to respond, within 10 days after the ALJ sends a "show cause" notice, with a showing of good cause.

The ALJ also relied on section 1128A(c)(4) of the Act, which is made applicable to civil money penalty proceedings involving nursing facilities by section 1819(h)(2)(B)(ii) of the Act. Section 1128A(c)(4) provides:

The official conducting a hearing under this section may sanction a person, including any party or attorney, for failing to comply with an order or procedure, failing to defend an action, or other misconduct as would interfere with the speedy, orderly, or fair conduct of the hearing. Such sanction shall reasonably relate to the severity and nature of the failure or misconduct.


ISSUES
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FINDINGS OF FACT AND CONCLUSIONS OF LAW
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ANALYSIS
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While we agree that an ALJ has authority to dismiss a petitioner's request for hearing under either 45 C.F.R. � 498.69(a) or section 1128A(c)(4) of the Act, we conclude that to do so on the basis of the record before us constitutes an abuse of discretion. The record in this case does not include all of the orders and other key communications cited by the ALJ decision. In addition, the ALJ's orders are not sufficiently clear. Furthermore, in exercising her discretion to dismiss, the ALJ did not consider all of the relevant factors.

Below we discuss the record of the proceeding before the ALJ and explain why the record does not support dismissal of Osceola's request for hearing.

1. The record of the proceedings before the ALJ.

Osceola sought a hearing before an ALJ to contest (1) the imposition of a CMP for failure to substantially comply with the requirements of the Medicare and Medicaid programs and (2) the denial of payment for new Medicare and Medicaid admissions.(1) On April 30, 1998, the ALJ issued an Order setting forth certain filing requirements and deadlines which were applicable to both parties. Specifically, the Order provided that, within 60 days of the Order, the parties were to confer with one another and to file at least one of the following types of documents: a motion to stay proceedings; a dismissal for cause, abandonment, remand, or summary judgment; a notice of issues for which summary judgment will be requested; or a report of the parties' readiness to present evidence for adjudication of the case (Report of Readiness).

The deadline for filing under that Order expired June 29, 1998. In its appeal brief, Osceola stated that, on June 17, 1998, the parties made a joint request for additional time. Osceola Br. at 2. However, the record transmitted to us does not include this request. The ALJ Decision does not mention the parties' motion but simply reports that, on June 17, 1998, the ALJ issued an order granting the parties a 90-day stay, until September 15, 1998, to allow for settlement discussions. ALJ Decision at 6. However, the record does not include the June 17 Order.(2)

As to actions subsequent to the June 17 Order, the ALJ Decision reports that --

[w]hen no report was filed by the end of that stay, my office requested that the parties inform me whether they had reached a settlement. If the parties had not reached a settlement, they were directed to either request a further stay if continued settlement discussions would be likely to resolve the matter or to file one of the documents specified in my Order dated April 30, 1998. As of November 18, 1998, no response had been received. Therefore, the parties were directed to inform my office by November 23, 1998 as to the status of this case.

Id.

The record does not include either of these directives by the ALJ to the parties, nor any document confirming that the directives were transmitted orally. However, HCFA stated that, on November 19, 1998, the parties again requested a joint stay. HCFA Br. at 1. Again, the record does not include any written joint request (or any document confirming an oral request), but the ALJ Decision reports that, on December 9, 1998, the ALJ granted the parties' motion for a stay to continue settlement negotiations.

The December 9, 1998 Order provided:

This is to inform the parties that, at the parties' request, Judge Leahy has granted an additional 90-day stay to allow the parties to continue settlement negotiations. Accordingly, if the parties are unable to reach a settlement, on or before February 22, 1999 Petitioner shall confer with HCFA and file at least one of the documents specified in Paragraph 2 of the Judge's April 30, 1998 Order. If the parties are unable to agree on the nature of the document to be filed, then each party shall file the document it deems appropriate.

Should Petitioner fail to file any document required by the Order, Judge Leahy may deem such failure to be evidence of abandonment and dismiss the hearing request pursuant to 42 C.F.R. 498.69.

In the briefing in this appeal, counsel for HCFA represented that, on March 31, 1999, counsel for Osceola contacted him and "inquired about setting the matter for a hearing." HCFA Br. at 2. Counsel for HCFA further stated that he then "sent an e-mail that day to the ALJ's staff attorney, for direction on what documents to file in order to set the matter for a hearing." Id. There is no document in the record concerning HCFA's counsel's inquiry of the staff attorney.

The ALJ Decision reports that "because nothing was received from Petitioner by March 31, 1999," the ALJ "re-issued" her December 9, 1998 order on March 31. ALJ Decision at 6. There is no mention in the ALJ Decision that the March 31 Order appears to have been precipitated by Petitioner's action in contacting HCFA and HCFA's action in contacting the staff attorney, apparently on behalf of both parties.

The March 31, 1999 Order, which indicates on its face that it was to be transmitted by e-mail facsimile to counsel for Osceola, provided:

On December [9], 1998, I indicated by e-mail and fax to counsel at the time an additional stay of 90-days was granted (until February 22, 1999) that, if the parties were unable to reach a settlement, the parties should confer and file at least one of the documents specified in Paragraph 2 of the Judge's April 30, 1998 Order. If the parties cannot agree on the nature of the document to be filed, then each party shall file the document it deems appropriate.

Please refer to the April 30, 1998 Order and my e-mail (to Mr. Mallin) and facsimile transmission (to Mr. Watkins) of December 9, 1998.

Counsel for Osceola represented that, even though his office keeps a log of all incoming facsimiles, his office has no record of receipt of this March 31, 1999 facsimile. Osceola Ex. 1, Affidavit of Craig Earp dated September 29, 1999. The ALJ Decision reports that "a receipt indicates transmission was successful." ALJ Decision at 6. There is no such receipt in the record, however.

On April 12, 1999, the ALJ issued an Order to Show Cause to Osceola asking it to show cause why the case should not be dismissed for abandonment. The Order to Show Cause allowed Osceola 15 days to respond and allowed HCFA an additional 10 days from receipt of Osceola's submission to reply, if it desired.

On April 27, 1999, Osceola filed a response stating that it had not received the March 31, 1999 Order, and that it did not wish to abandon its appeal. It also stated that, by a letter of April 14, 1999, HCFA had inquired as to the preparation of the "Report of the Parties." Petitioner's Response to Order to Show Cause at 2. With its response, Osceola filed a Report of Readiness to proceed to a hearing.

On April 29, 1999, HCFA filed its Report of Readiness to proceed to a hearing. HCFA did not address the ALJ's Order to Show Cause, and it did not seek an extension of time to file its Report of Readiness out of time. The ALJ issued her decision dismissing the case for abandonment on May 25, 1999, citing section 1128A(c)(4) of the Act and 42 C.F.R. � 498.69.

2. Why the record in this case does not support dismissal of Osceola's request for hearing under 42 C.F.R. � 498.69.

The ALJ dismissed this request for hearing pursuant to 42 C.F.R. � 498.69. That regulation provides that the ALJ may dismiss a request for hearing if the request is abandoned by the party requesting it. On appeal, Osceola argued that the ALJ did not have authority pursuant to 42 C.F.R. � 498.69(b)(1) to conclude that Osceola had abandoned its request for hearing unless Osceola had failed to physically appear at a prehearing conference or hearing.

While 42 C.F.R. � 498.69(b)(1) is framed in terms of a party's failure to appear at a prehearing conference or hearing, we reject Osceola's construction of this section. The ALJ reasonably construed abandonment under section 498.69(b)(1) to include failure to appear in written form by failing to file prehearing documents clearly ordered by an ALJ. The ALJ gave the parties notice of this construction in her December 9 Order, stating that-

Should Petitioner fail to file any document required by the Order, Judge Leahy may deem such failure to be evidence of abandonment and dismiss the hearing request pursuant to 42 C.F.R. 498.69.

Therefore, we conclude that the fact that Osceola did not fail to physically appear at a prehearing conference or hearing did not preclude dismissal pursuant to section 498.69(a).

However, because we conclude that an ALJ has the authority to treat failure to file documents as tantamount to a failure to appear and therefore abandonment, we also conclude that the factual circumstances upon which an ALJ bases her determination of abandonment must be clearly documented in the record. Thus, a dismissal pursuant to 42 C.F.R. � 498.69(a) should be based on a fully documented record showing that a party has failed to comply with clear orders or directions to the parties. The record should document the procedure used and the evidence relied on by the ALJ to determine abandonment and the appropriateness of the imposition of the sanction of dismissal. Such documentation is necessary to allow meaningful appellate review of whether the ALJ has exercised her discretion properly.

In this case, the ALJ based her dismissal on her conclusion that "Petitioner has acted in disregard of my Orders on repeated occasions and over prolonged periods of time." ALJ Decision at 6.(3) For the following reasons, we find that the ALJ Decision is not based on clear and documented orders to parties and thus there is no clear record of Osceola's disregard of orders on repeated occasions over prolonged periods of time.

First, the record is not complete. The ALJ Decision and the parties' briefs refer repeatedly to events which should be documented in the case record. These events include two motions by the parties for a continued stay for negotiations; the June 17 Order granting the parties additional time to negotiate; the ALJ's staff attorney's contact with the parties at the expiration of the June 17 Order; an e-mail of March 31 from HCFA, presumably on behalf of both parties, to the ALJ's staff attorney for direction in setting the matter for a hearing; and any evidence which would support the ALJ's conclusion that the March 31 Order had been successfully transmitted to Osceola. The lack of a complete record in this case prevents meaningful review of the question of whether Osceola's conduct constitutes a "failure to appear" and therefore abandonment of its hearing request and whether dismissal was an appropriate sanction pursuant to 42 C.F.R. � 498.69(a).

Second, for the following reasons, we conclude that the directives to the parties were not so clear as to serve as a basis for determining that Osceola had abandoned its request for hearing and for invoking one of the most serious of adjudicative remedies - dismissal for abandonment.

  • Since the record does not contain the June 9 Order granting the first continuance, we cannot evaluate whether there was something in that Order which would affect how the December 9 Order would have been construed by the parties.
  • The December 9 Order is subject to alternative readings. On the one hand, it provides that the parties are "granted an additional 90-day stay to allow the parties to continue settlement negotiations," which could be read as indicating that the parties can negotiate for 90 days, and if negotiations fail at that point, confer about what documents to file under the April 30, 1998 Order.(4) However, the Order also states that "if the parties are unable to reach a settlement, on or before February 22, 1999 [Osceola] shall confer with HCFA and file at least one of the documents specified in Paragraph 2 the judge's April 30, 1998 Order," which could be read as indicating that the parties should decide, prior to February 22, whether further negotiations were feasible and file at least one of the documents by that date if negotiations failed.
  • It is evident from HCFA's behavior that, in the context of the prior dealings of the parties with one another and with the ALJ, HCFA did not read the December 9 Order as setting a strict deadline for the parties to act by February 22. For example, HCFA did not file any of the documents that were required of it by February 22; and, on March 31, HCFA inquired, on behalf of both parties, what the parties should do next to move the case to hearing. Moreover, even after receiving the Order to Show Cause, which stated that the December 9 Order had set a strict deadline, HCFA filed a Report of Readiness without either an accompanying apology or excuse.
  • Further, as of March 31, 1999, the ALJ apparently did not regard Osceola's failure to file a Report of Readiness by February 22 as dispositive of Osceola's right to a hearing. Rather than issuing an Order to Show Cause as to dismissal on March 31, the ALJ simply issued another order instructing the parties to file one of the documents specified in the April 30, 1998 Order. In addition, the March 31 Order did not even contain a deadline by which Osceola should act.
  • Since the March 31 Order plainly gave Osceola an opportunity to avoid dismissal, nonreceipt of that order is not, as the ALJ concluded, "immaterial." ALJ Decision at 7. While the ALJ stated that "receipts for each transmission indicates that the respective transmission was sent and received by both parties," (id. at n.4) there are no "receipts" in the record. Therefore, nothing in the record controverts Osceola's assertion that it did not receive this critical order.
  • Finally, even though the ALJ invited HCFA to reply to Osceola's response to the Order to Show Cause, HCFA did not file a reply or argue that Osceola's hearing request should be dismissed. Instead, HCFA filed its own Report of Readiness to proceed to hearing. Again, this indicates that in the context of the parties' dealings with one another and their understanding of the process before the ALJ, HCFA did not regard Osceola as having abandoned its hearing request. Further, it shows that HCFA did not share the ALJ's view that Osceola had behaved in a way that was abusive of the federal hearing process. See ALJ Decision at 10.

For the preceding reasons, we conclude that the ALJ abused her discretion in dismissing Osceola's hearing request pursuant to 42 C.F.R. � 498.69.

3. Why the record in this case does not support dismissal of Osceola's request for hearing under section 1128A(c)(4) of the Act.

Pursuant to section 1128A(c)(4) of the Act, the ALJ concluded that dismissal of Osceola's request for hearing was an appropriate sanction for Osceola's "omissions and misconduct." ALJ Decision at 10. On appeal, Osceola argued that dismissal pursuant to section 1128A(c)(4) was not proper because the sanction of dismissal did not "reasonably relate to the severity and nature of the failure or misconduct" as required by section 1128A(c)(4).

For the following reasons, we agree with Osceola that this record does not support a finding that the dismissal was reasonably related to the severity and nature of Osceola's failure or misconduct and conclude that the dismissal constituted an abuse of discretion.

A dismissal pursuant to section 1128A(c)(4) in a civil money penalty proceeding against a nursing facility results in the loss of an important, statutorily conferred right to an opportunity for a hearing. Given the serious consequences of such a dismissal and the explicit admonition that any sanction must be reasonably related to the party's failure or misconduct, we conclude that dismissals should be reviewed pursuant to specific standards. For guidance for such standards, we examined cases analyzing dismissals pursuant to Rule 41(b) of the Federal Rules of Civil Procedure. Rule 41(b) vests district courts with discretion to dismiss an action "[f]or failure of the plaintiff to prosecute or to comply with . . . any order of court."

A review of Rule 41(b) cases demonstrates that, while the appellate courts acknowledge the importance of a district court's ability to manage its own docket, they repeatedly declare that dismissal is a remedy to be used with great caution: "Rule 41(b) dismissals are a 'harsh remedy' that are 'appropriate only in extreme circumstances.'" Spencer v. Doe, 139 F.3d 107, 112 (2nd Cir. 1998)(citations omitted); "Dismissal with prejudice is an extreme sanction and should be used only in cases of wilful disobedience of a court order or ... persistent failure to prosecute a complaint." Rodgers v. University of Missouri, 135 F.3d 1216, 1219 (8th Cir. 1998); "[D]ismissal with prejudice 'is a harsh sanction' which runs counter to our 'strong policy favoring the disposition of cases on the merits.'" Benjamin v. Aroostook Medical Center, Inc., 57 F.3d 101, 107 (1st Cir. 1995) (citations omitted). Dismissal should be used "as a weapon of last, rather than first, resort." Meade v.Grubbs, 841 F.2d 1512, 1520 (10th Cir. 1988).

Further, appellate courts have applied strict standards in reviewing dismissals for party misconduct and lack of diligence. For example, the Sixth Circuit employs a four prong test:

(1) whether the party's failure is due to willfulness, bad faith, or fault; (2) whether the adversary was prejudiced by the dismissed party's conduct; (3) whether the dismissed party was warned that failure to cooperate could lead to dismissal; and (4) whether less drastic sanctions were imposed or considered before dismissal was ordered.

Stough v. Mayville Community Schools, 138 F.3d 612, 615 (6th Cir. 1998).

For examples of tests used by other circuits, see Spencer v. Doe, supra, 112-113; Chandler Leasing Corp. V. Lopez, 669 F.2d 919, 920 (4th Cir. 1982); and McNeal v. Papasan, 842 F.2d 787 (5th Cir. 1988).

Finally, where the record is incomplete as to whether a lower court considered a necessary factor in justifying a dismissal or as to evidence which would support the lower court's decision to dismiss, appellate courts have found such lack of consideration or evidence to result in an abuse of discretion. See McNeal v. Papasan, 842 F.2d at 793, ("As our cases explain, we cannot conclude from a silent record that the district court made this required finding."); Tolbert v. Leighton, 623 F.2d 585, 587 (9th Cir. 1980) ("There is no indication that the district court here did so [consider less drastic alternative]; necessarily, then, the court failed to exercise any discretion in choosing among the alternatives. . . . [D]ismissal for failure to prosecute was an abuse of discretion."); Searock v. Stripling, 736 F.2d 650, 653 (11th Cir. 1984) ("In order to uphold the final dismissal order, the factors supporting dismissal must be apparent from the record").

After examining these opinions, we conclude that a dismissal should be a remedy of last resort and that the record of a dismissal should be complete and the orders to parties should be clear. Here, as we have explained above, we have concluded both that the record is incomplete and that the orders are not sufficiently clear to allow us to conclude that Osceola's failures to respond resulted from willfulness, bad faith, or fault. HCFA clearly did not regard itself as prejudiced by Osceola's conduct. In addition, while Osceola was told that failure to file appropriate documents could lead to dismissal, we cannot conclude that the order setting forth the warning was sufficiently clear as to serve as a sufficient warning that dismissal might be imminent. Finally, there is no indication in the record that the ALJ considered less drastic sanctions before dismissal was ordered.


CONCLUSION
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For the foregoing reasons, we conclude that the record is not sufficiently complete nor are the orders sufficiently clear to support a finding pursuant to 42 C.F.R.

� 498.69(a) that Osceola had failed to appear before the ALJ and thereby abandoned its request for hearing. Similarly, we conclude that, on the basis of this record, dismissing Osceola's hearing request is not "reasonably related to the severity and nature of the failure or misconduct" as required by section 1128A(c)(4). Dismissal under either authority constituted an abuse of discretion by the ALJ.

We remand this case to the ALJ for further proceedings. On remand, the ALJ should treat the case as though the parties had complied with her orders regarding Reports of Readiness. The ALJ has the discretion to dismiss this case in the future if Osceola fails to meet clearly set deadlines without a showing of good cause.


JUDGE
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Judith A. Ballard
Donald F. Garrett
M. Terry Johnson
Presiding Board Member


FOOTNOTES
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1. In the ALJ Decision, the ALJ discussed, but did not rule on, the question of whether Osceola's request for hearing was legally sufficient. Specifically, the ALJ noted that Osceola sent its March 31, 1998 letter to the state agency prior to the issuance of HCFA's notice letter imposing a CMP and a denial of payments for new Medicare and Medicaid residents. At that time, there was no HCFA initial determination that would have given rise to the right to request a hearing. 42 C.F.R. � 498.40(a). However, the state agency forwarded Osceola's letter to HCFA, and HCFA forwarded it to the Departmental Appeals Board (DAB) Civil Remedies Division. HCFA wrote: "Enclosed for your action is a Request for Hearing filed on behalf of Osceola Nursing and Rehabilitation Center; Osceola, Iowa." HCFA letter dated April 16, 1998. The ALJ questioned whether Osceola's March 31, 1998 letter constituted a request for hearing pursuant to 42 C.F.R.

� 498.40 because it predated HCFA's April 9, 1998 notice letter and because it did not contain the "detailed requirements concerning what must be included in a document for it to be considered a request for hearing." ALJ Decision at 3. For purposes of this decision, we conclude that by treating Osceola's appeal letter as a request for a hearing on HCFA's initial determination and by filing a Report of Readiness to proceed to a hearing, HCFA has waived any right it may have had to raise any deficiencies of Osceola's March 31, 1998 letter in relation to whether it constituted a valid request for hearing pursuant to 42 C.F.R. � 498.40.

2. Pursuant to the Board's standard procedures, the Civil Remedies Division forwarded the record in this case to the Appellate Division. After reviewing the record, the Appellate Division returned it to the Civil Remedies Division, noting that documents referred to in the ALJ Decision were not in the record. When the Civil Remedies Division returned the record to the Appellate Division, copies of two additional documents (the December 9, 1998 Order and the March 31, 1999 Order) had been added to the record.

3. With this decision, we do not imply that a dismissal for failure to file documents can be issued only after a party has acted in repeated disregard of an ALJ's orders over prolonged periods of time. However, repeated disregard over prolonged periods of time is the basis that was used in this decision and, as we explain above, that conclusion is not supported by this record.

4. The December 9 Order refers to an additional 90-day stay but then sets February 22 as a deadline. We assume that the ALJ was considering the stay to run from November 19, when the parties apparently jointly requested the additional time.


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