Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 1 of 22 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW MEXICO NAVAJO HEALTH FOUNDATION - ) SAGE MEMORIAL HOSPITAL, INC. ) ) PLAINTIFF, ) ) v. ) ) SYLVIA MATHEWS BURWELL, SECRETARY ) NO. 1:14-cv-958-JB-GBW OF THE UNITED STATES DEPARTMENT OF ) HEALTH AND HUMAN SERVICES; ) YVETTE ROUBIDEAUX, ACTING DIRECTOR ) OF INDIAN HEALTH SERVICE; ) JOHN HUBBARD, JR., AREA DIRECTOR, ) NAVAJO AREA INDIAN HEALTH SERVICE; ) and FRANK DAYISH, CONTRACTING ) OFFICER, NAVAJO AREA INDIAN HEALTH ) SERVICE, ) ) DEFENDANTS. ) ) PLAINTIFF S REPLY TO DEFENDANTS OPPOSITION TO PLAINTIFF S MOTION FOR IMMEDIATE INJUNCTIVE RELIEF FRYE LAW FIRM, P.C. Paul E. Frye 10400 Academy Rd. NE, Suite 310 Albuquerque, NM 87111 Tel: (505) 296-9400 Fax: (505) 296-9401 Attorney for Plaintiff Navajo Health Foundation- Sage Memorial Hospital, Inc.
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 2 of 22 TABLE OF CONTENTS I. INTRODUCTION........................................................ 1 II. IHS RATIONALE FOR DECLINING TO ENTER INTO THE THREE- YEAR RENEWAL AND THE AFAs IS CONTRARY TO THE ISDEAA AND ITS IMPLEMENTING REGULATIONS......................... 4 III. THE IRRELEVANT AND LARGELY UNFOUNDED CONCERNS AND CONCLUSIONS STATED IN THE IHS DECLINATION LETTER AND MOSS ADAMS STUDY HAVE NO RELATIONSHIP TO EITHER THE LAWFULNESS OF THE IHS DECLINATION OR PATIENT CARE....................................................... 10 A. Sage Provided All Requested Documents to which IHS Was Entitled.......................................................... 10 B. The Grounds Stated in IHS Declination Letter Are Without Foundation....................................................... 11 IV. CONCLUSION......................................................... 16 ii
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 3 of 22 I. CASES TABLE OF AUTHORITIES Crownpoint Inst. of Tech. v. Norton, CIV No. 04-531 JP/DJS (D.N.M. Sept. 16, 2005)........ 9 Forest Guardians v. Babbitt, 174 F.3d 1178 (10th Cir. 1999)............................ 2 Maniilaq Ass n v. Burwell, No. 13-cv-380 (TFH), F. Supp. 3d, 2014 WL 5558336 (D.D.C. Nov. 3, 2014)......................................................... 2 Mashantucket Pequot Tribal Nation v. IHS, DHHS Departmental Appeals Bd., App. Div., No. A-06-60, Dec. No. 2028 (May 3, 2006)............................. 3, 5 Pyramid Lake Paiute Tribe v. Burwell, No. 1:13-cv-01771 (CRC), F.Supp.3d, 2014 WL 5013206 (D.D.C. Oct. 7, 2014).......................................... 9 Ramah Navajo Sch. Bd., Inc. v. Babbitt, 87 F.3d 1338 (D.C. Cir. 1996).................. 2, 7 Salazar v. Ramah Navajo Chapter, 132 S.Ct. 2181 (2012).............................. 6 Shoshone-Bannock Tribes of Ft. Hall Res. v. Shalala, 988 F.Supp. 1306 (D. Or. 1997), on reconsideration, 999 F. Supp. 1395 (D. Or. 1998).............................. 2-3 Southern Ute Indian Tribe v. Leavitt, 497 F.Supp. 2d 1245 (D.N.M. 2007), app. dism d, 564 F.3d 1198 (10th Cir. 2009), op. after remand, Southern Ute Indian Tribe v. Sebelius, 657 F.3d 1071 (10th Cir. 2011), cert. denied, 133 S. Ct. 24 (2012)........................................................... 5 Southern Ute Indian Tribe v. Sebelius, 657 F.3d 1071 (10th Cir. 2011), cert. denied, 133 S. Ct. 24 (2012).......................................... 3, 5, 6-7 Star Fuel Marts, LLC v. Sam s East, Inc., 362 F.3d 639 (10th Cir. 2004)................... 9 Susanville Indian Rancheria, DAB 1813, 2002 WL 274644 (H.H.S. 2002)................. 6 Susanville Indian Rancheria v. Director, California Area Office, IHS, No. IBIA 97-89-A (Dep t of Interior Hearings Div. Dec. 9, 2002), aff d, No. A-03-35, 2003 WL 974613 (Dep t of HHS App. Bd. Jan. 30, 2003).......................................... 7-8 Susanville Indian Rancheria v. Leavitt, No. 2:07-cv-259-GEB-DAD, 2008 WL 58951 (E.D. Cal. Jan. 3, 2008).......................................... 9 iii
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 4 of 22 United States v. Ray, 488 F.2d 15 (10th Cir. 1973).................................... 6 II. STATUTES 25 U.S.C. 450................................................................ 1 25 U.S.C. 450a, et seq.......................................................... 1 25 U.S.C. 450c(b)........................................................... 10 25 U.S.C. 450f(a)(2).......................................................... 7 25 U.S.C. 450l(c)............................................................ 13 25 U.S.C. 450m......................................................... 8, 9, 12 25 U.S.C. 450m-1....................................................... 1, 9, 16 III. REGULATIONS 25 C.F.R. 900.3(a)(5).......................................................... 6 25 C.F.R. 900.8.............................................................. 7 25 C.F.R. 900.9.............................................................. 7 25 C.F.R. 900.12............................................................. 7 25 C.F.R. 900.24............................................................. 5 25 C.F.R. 900.32..................................................... 2, 4, 5, 6, 7 25 C.F.R. 900.33................................................... 1-2, 4, 5, 7, 8 25 C.F.R. 900.41(a)-(c)....................................................... 10 25 C.F.R. 900.248-254........................................................ 9 IV. OTHER AUTHORITIES 1A N. Singer & S. Singer, Sutherland Statutory Construction (7th ed. 2009)................ 6 iv
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 5 of 22 DOI/HHS Internal Agency Procedures Workgroup, Internal Agency Procedures Handbook for Non-Construction Contracting Under Title I of the Indian Self-Determination and Education Assistance Act.................................................... 7, 13 v
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 6 of 22 I. INTRODUCTION Plaintiff Navajo Health Foundation - Sage Memorial Hospital, Inc. ( Sage ) proposed to the Secretary of the Department of Health and Human Services ( Secretary ) a three-year renewal of its contract and successor Annual Funding Agreement ( AFA ) for Fiscal Year ( FY ) 2014 that are substantively identical to the previous contract and the AFA approved by the Secretary for FY 2013. The Secretary declined to enter into these agreements, and later declined to approve the proposed FY 2015 AFA. Sage sued and moved for immediate injunctive relief because Defendants (collectively, Indian Health Service or IHS ) did so in violation of the Indian Self-Determination and Education Assistance Act ( ISDEAA ), 25 U.S.C. 450, 450a et seq., and its implementing regulations. Such immediate injunctive relief is specifically permitted under the ISDEAA to remedy violations of the Act. 25 U.S.C. 450m-1(a). There is nothing preliminary about such relief, and Sage did not move for a preliminary injunction. If Sage is correct that IHS unlawfully rejected the renewal proposal and FY 2014 AFA, then this Court should award the extraordinary relief provided in the ISDEAA, and order Defendants to execute the three-year contract renewal and FY 2014 AFA, fully fund the FY 2014 AFA, and execute and fund the FY 2015 AFA to the extent that such funding does not exceed that provided under the FY 2014 AFA. 1 IHS regulations prohibit it from applying any of the five declination criteria to renewals of a term contract where there is no material and substantial change to the scope or funding of a program, functions, services, or activities [ PFSAs ] proposed by the tribal organization. 25 C.F.R. 1 IHS concedes that the declination of the FY 2015 AFA was based on the same reasons and concerns as its declination of the FY 2014 AFA. Opp. at 16.
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 7 of 22 900.33. Sage had such a term contract with IHS through September 30, 2013, and the PFSAs for FY 2013 are substantively identical to the PFSAs proposed for FY 2014. Compare Lodging (Dkt. 21) at 42-47 with id. at 79-84. Similarly, IHS regulations do not permit it to decline to enter into an AFA that is substantially the same as the prior year s AFA. 25 C.F.R. 900.32. If the proposed AFA is substantially the same, the Secretary [of HHS] shall approve and add to the contract the full amount of funds to which the contractor is entitled, and may not decline, any portion of a successor annual funding agreement. Id. (emphases added). In this Circuit, [s]hall means shall. Forest Guardians v. Babbitt, 174 F.3d 1178, 1187 (10th Cir. 1999). The FY 2014 AFA is not only substantially the same as the approved FY 2013 AFA, it is substantively identical. Compare Lodging (Dkt. 21) at 34-41 with id. at 70-78. The applicable regulations are unequivocal and clear. IHS seeks to avoid their application with the novel proposition that substantively identical contract renewal proposals and AFAs are not substantially the same if information that was not known to the Secretary that rendered the successor proposal not the same as it was previously viewed by the Secretary. Opp. at 24. Here, that new information is the seeming relinquishment of control of ISDEAA funds to a contracted management company and the potential health and safety violations that impeded satisfactory health care services. Id. at 26 (emphases added). IHS position has no support in the ISDEAA, the regulations, or any case law, and this post hoc rationalization, advanced and explained for the first time in this litigation, is entitled to no deference. 2 The sole support for IHS position is a largely 2 See, e.g., Ramah Navajo Sch. Bd., Inc. v. Babbitt, 87 F.3d 1338, 1344 (D.C. Cir. 1996); Maniilaq Ass n v. Burwell, No. 13-cv-380 (TFH), F.Supp. 3d, 2014 WL 5558336 (D.D.C. Nov. 3, 2014) at *3-*4; Shoshone-Bannock Tribes of Ft. Hall Res. v. Shalala, 988 F.Supp. 1306, 2
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 8 of 22 irrelevant unpublished agency decision, Mashantucket Pequot Tribal Nation v. IHS, 3 discussed below. Notwithstanding its own regulations, IHS presents here a hybrid of inapplicable declination criteria and operational and fiscal concerns, with not one example of how those concerns actually affected a single patient. Cf. Mot. for Inj. (Dkt. 17) Ex. C 18. If the Navajo Area IHS were truly concerned with patient care, it would shut down its own Gallup facility, ranked worst of all hospitals in the United States evaluated under the Affordable Care Act, 4 not Sage. Notably, IHS does not challenge any of the facts stated and supported in Sage s motion regarding Sage s remarkable turnaround, rehabilitation of the physical plant, certifications, awards, and series of clean annual audited financial statements since 2007, when Sage contracted with M Morgan & Associates and, later, with Razaghi Development Company (doing business as and hereinafter Razaghi Healthcare ) to manage the hospital. Rather, IHS presents an extended discussion of the concerns and conjectures expressed by its contractor, Moss Adams, attacking primarily the highly competent and accomplished Sage Board of Directors. See Ex. B 3 & Att. 1 (regarding Board members). None of the conclusions reached or concerns raised by either Moss Adams or IHS provides a lawful basis for IHS decision not to renew the Sage term contract and the successor AFA. All of 1315-17 (D. Or. 1997), on reconsideration, 999 F.Supp. 1306 (D. Or. 1998); see generally Southern Ute Indian Tribe v. Sebelius, 657 F.3d 1071, 1078 (10th Cir. 2011) (canon of construction favoring Indians trumps deference to agency), cert. denied, 133 S. Ct. 24 (2012). 3 The odd-numbered pages of that decision are reproduced as Ex. 5 to IHS Response Brief. Sage attaches the entire decision hereto as Exhibit G. 4 See Mot. for Inj. (Dkt. 17) at 17& n.3. 3
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 9 of 22 that discourse is irrelevant to the dispositive legal issue of whether the IHS declination is unlawful for violating 25 C.F.R. 900.32 and 900.33. II. IHS RATIONALE FOR DECLINING TO ENTER INTO THE THREE-YEAR RENEWAL AND THE AFAs IS CONTRARY TO THE ISDEAA AND ITS IMPLEMENTING REGULATIONS. IHS states that its declination was based on IHS s findings that Sage s Board of Directors had misused government funding and that Sage s management company had similarly misused funding and exerted undue influence over the operation of the hospital. Opp. at 1-2. IHS recognizes that it may not reduce funding in future years if the contractor proposes a successor AFA that is substantially the same as the prior AFA. Opp. at 23 (citing 25 C.F.R. 900.32). The FY 2014 AFA proposed by Sage is substantively identical to the 2013 AFA that IHS approved. Compare Lodging (Dkt. 21) at 14-47 (approved contract and 2013 AFA) with id. at 68-84 (proposed renewal and FY 2014 AFA). Nonetheless, IHS contends that use of declination criteria in this case is permissible as follows: It is the Secretary s position that an AFA may be declined as not being substantially the same as the prior AFAs when there is information that was not known to the Secretary that rendered the successor proposal not the same as it was previously viewed by the Secretary. Opp. at 24. In such a case, IHS argues, IHS need not look at whether any particular portions of the successor AFA differs from the prior approved one, but, rather, the entire AFA may be considered substantially different. That position finds no support in the ISDEAA, its implementing regulations, or any applicable administrative or federal court decision. First, IHS argument erroneously assumes that any declination criterion can justify a refusal 4
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 10 of 22 to renew a term contract or to execute a successor AFA that is substantially similar to the previously approved one. Cf. 25 C.F.R. 900.32, 900.33 (both expressly providing otherwise). Even if that defect in reasoning could be overcome, IHS also incorrectly assumes that the five declination criteria permitted under ISDEAA and its implementing regulations are not the exclusive ones, and that the Secretary can concoct new ones if she is dissatisfied with the sophistication, expertise, or performance of the tribal organization s governing body. Cf. 25 C.F.R. 900.24 (expressly providing otherwise); Southern Ute Indian Tribe v. Leavitt, 497 F.Supp. 2d 1245, 1253 (D.N.M. 2007) (ruling otherwise), app. dism d, 564 F.3d 1198 (10th Cir. 2009), op. after remand, Southern Ute Indian Tribe v. Sebelius, 657 F.3d 1071 (10th Cir. 2011), cert. denied, 133 S.Ct. 24 (2012). IHS relies on only one unpublished administrative decision to support its novel argument that, any time the Secretary learns of a circumstance that she did not know about previously, she can unilaterally terminate the contractual relationship with a tribal contractor without notice. Opp. at 25 (citing Mashantucket Pequot Tribal Nation v. IHS, DHHS Departmental Appeals Bd., App. Div, No. A-06-60, Dec. No. 2028 (May 3, 2006) (Pequot)). Pequot does not support the Secretary s use of the declination criteria here. The excerpts from Pequot attached to IHS Opposition show that (1) the tribal organization in that case sought to contract for services (sales of pharmaceuticals to non- Indians employed at the Foxwood casino) that the Secretary was not authorized to administer for the benefit of Indians under the ISDEAA, (2) the decision was based on the dispositive fact that the tribal governing body did not comply with a provision of a different act of Congress to make a contemporaneous determination that there were no alternative services available to these non- Indians, (3) no reasonable person could have come to the conclusion that alternative services were 5
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 11 of 22 unavailable for the non-indians, in any event, and (4) under those facts, 25 C.F.R. 900.32 could not supply an independent basis for requiring the Secretary to approve that particular portion of the AFA because the Secretary had not proposed to reduce the proposed funding amounts for the successor year, Opp. Ex. 5 at p. 17 of 21 (distinguishing Susanville Indian Rancheria, DAB 1813, 2002 WL 274644 (H.H.S. 2002), on that basis). Contrary to Pequot, the Navajo Nation Council has violated no statutory (or other) duty, the Sage PFSAs are all properly contractible under the ISDEAA, and IHS declination in this case would reduce the funding amount, to zero. And, again contrary to IHS litigation position, 25 C.F.R. 900.32 looks not at whether the proposed AFA as a whole is substantially the same, but at whether portions of the proposed AFA are substantially the same. Susanville Indian Rancheria, supra, (reproduced as Ex. H hereto) (emphasizing that language in 25 C.F.R. 900.32). There is no basis for IHS contorted reading of regulations that are abundantly clear. Even if 25 C.F.R. 900.32 or 900.33 admitted of any ambiguity, the ISDEAA, its implementing regulations, and all provisions in an ISDEAA contract must be strictly construed in favor of tribal contractors such as Sage. Salazar v. Ramah Navajo Chapter, 132 S. Ct. 2181, 2193 (2012) (ISDEAA is construed in favor of tribes ); 25 C.F.R. 900.3(a)(5) ( each provision of the Act and each provision of contracts entered into thereunder shall be liberally construed for the benefit of... tribal organizations ); United States v. Ray, 488 F.2d 15, 18 (10th Cir. 1973) (rules of statutory construction govern interpretation of regulations); 1A N. Singer & S. Singer, Sutherland Statutory Construction 31.6 at 698 & n.3 (7th ed. 2009) (same). This rule trumps any deference to an agency position, whether developed in litigation (as here) or not, Southern Ute Indian Tribe, 657 F. 3d at 6
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 12 of 22 1078, especially where Congress has made it abundantly clear that a long history of agency malfeasance requires that the agency receive as little deference as possible. See, e.g., Ramah Navajo School Bd. v. Babbitt, 87 F.3d 1338, 1344 (D.C. Cir. 1996). Indeed, the contracting procedures developed by both agencies (including HHS) charged with implementing the ISDEAA support Sage on this point. See DOI/HHS Internal Agency Procedures Workgroup, Internal Agency Procedures Handbook for Non-Construction Contracting Under Title I of [ISDEAA] ( Handbook ) at 5-16 to 5-17 (a tribal organization s performance under the existing contract shall have no effect on the contract renewal process except as stated in 25 C.F.R. 900.33. (Any alleged grounds the agency may have for terminating the contract must be dealt with under [25 C.F.R.] Subpart P- - Retrocession and Reassumption Procedures. )) (emphases added) (Ex. F hereto). A proposal under the ISDEAA is a physical document or set of documents submitted by a tribal organization to IHS, not some brooding omnipresence or evolving performance assessment by IHS. See 25 U.S.C. 450f(a)(2) ( a tribal organization may submit a proposal to... renew a selfdetermination contract, to the Secretary for review ); 25 C.F.R. 900.8 (specifying contents of initial contract proposal); 900.9 (prohibiting the Secretary from requiring a tribal organization to submit any other information beyond that identified in 900.8); 900.12 (specifying the proposal content requirements for renewal of a contract or a successor AFA). As Pequot points out, the meaning of [25 C.F.R. 900.32] does not depend on the facts of a particular case. Pequot, supra, at 21 n.13. Here, [n]o reasonable person, attempting an objective interpretation of 25 C.F.R. 900.32, would come to the conclusion that IHS was in this case free to decline portions of the proposed AFA which were substantially the same as the prior AFA. Susanville Indian Rancheria 7
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 13 of 22 v. Director, California Area Office, IHS, No. IBIA 97-89-A at 5 (Dep t of Interior Hearings Div. Dec. 9, 2002) (Ex. I hereto), aff d, No. A-03-35, 2003 WL 974613 (Dep t of HHS App. Bd. Jan. 30, 2003). The same reasoning applies to 25 C.F.R. 900.33 and Sage s proposal to renew its term contract for the period FY 2014 to FY 2016. This is not to say that IHS is powerless to take action if it determines that a tribal organization is committing serious improprieties. IHS investigation was based on IHS view that it had reasonable cause to believe that grounds for re-assumption of the contract or suspension of contract payments or other serious contract performance deficiencies could exist... Opp. at 7; see Lodging (Dkt. 21) at 17. If a tribal organizations performance under an ISDEAA contract involves (1) the violation of the rights or endangerment of the health, safety, or welfare of any persons; or (2) gross negligence or mismanagement in the handling or use of funds provided to the tribal organization pursuant to such contract,... [the] Secretary may, under regulations prescribed by him and after providing notice and a hearing on the record to such tribal organization, rescind such contract... in whole or in part, and assume or resume control or operation of the program, activity, or service involved if he determines that the tribal organization has not taken corrective action as prescribed by the Secretary... 25 U.S.C. 450m. IHS actions here effectively side-stepped the procedural safeguards to which Sage is entitled, including advance notification of alleged deficiencies in contract performance, a period of at least 45 days for the tribal organization to address the alleged deficiencies, mandatory technical assistance from IHS, a second written notice from IHS if the deficiencies are not remedied, a hearing on the record if the tribal organization disagrees with the findings of the Secretary, and windup cost reimbursement to the tribal organization if the tribal 8
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 14 of 22 organization ultimately loses. See 25 U.S.C. 450m (requiring hearing on the record and an opportunity to cure); 25 C.F.R. 900.248-.254. Finally, even overlooking the misstatements in IHS Opposition, such as the statement that [i]t is undisputed that Sage delayed for months before bringing this action for injunctive relief, Opp. at 28, IHS s argument on why injunctive relief should be denied proceeds from two principal misunderstandings. First, Sage did not move for a preliminary injunction; rather, Sage moved for immediate injunctive relief as provided by 25 U.S.C. 450m-1(a) when the Secretary has unlawfully declined to renew a contract or approve a successor AFA. Thus, if Sage prevails on this motion, there will be no trial on the merits, cf. Opp. at 18, 28; the merits will have been finally determined for its first three claims for relief. Second, IHS overlooks that Congress clearly sought to guide the district courts discretion by expressly providing for such immediate injunctive relief, rendering the typical standards for issuance of injunctions inapplicable. See Crownpoint Inst. of Tech. v. Norton, CIV No. 04-531 JP/DJS (D.N.M. Sept. 16, 2005), Dkt. 86 at 26 (citing, inter alia, Star Fuel Marts, LLC v. Sam s East, Inc., 362 F.3d 639, 651-52 (10th Cir. 2004)); Pyramid Lake Paiute Tribe v. Burwell, No. 1:13-cv-01771 (CRC), F.Supp. 3d, 2014 WL 5013206 at *7 (D.D.C. Oct. 7, 2014); Susanville Indian Rancheria v. Leavitt, No. 2:07-cv-259-GEB-DAD, 2008 WL 58951 at * 11 (E.D. Cal. Jan. 3, 2008). Therefore, IHS digression into those standards, Opp. at 17, 27-32, should be disregarded. See also Mot. for Inj. at 21-23 (explaining why immediate injunctive and mandatory relief is needed, with reference to cases dealing with irreparable harm, harm to IHS, and the public interest); composite Exhibit E (declarations of all Navajo Nation Council delegates whose constituent Chapters are within Sage s service area, showing that IHS 9
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 15 of 22 actions are not in the public interest). Sage believes IHS various concerns are irrelevant to this case. However, in the event the Court determines otherwise, Sage next addresses the principal issues raised by IHS and Moss Adams and repeated in IHS Opposition. III. THE IRRELEVANT AND LARGELY UNFOUNDED CONCERNS AND CONCLUSIONS STATED IN THE IHS DECLINATION LETTER AND MOSS ADAMS STUDY HAVE NO RELATIONSHIP TO EITHER THE LAWFULNESS OF THE IHS DECLINATION OR PATIENT CARE. A. Sage Provided All Requested Documents to which IHS Was Entitled. IHS refrain that Sage denied access to documents is incorrect or misleading. Phase I of the Moss Adams review concerned the period from October 1, 2009 through December 31, 2013. Opp. at 7. That review roughly corresponded to ISDEAA, the relevant regulation, and the contract, which limit IHS right to demand documents to three years. See 25 U.S.C. 450c(b); 25 C.F.R. 900.41(a)-(c) (three years from the date of submission of single audit report for financial documents and three years from the completion of a transaction or disposition of property); Lodging (Dkt. 21) at 14 (Sage/IHS contract incorporating ISDEAA by reference). So when Moss Adams expanded its scope in Phase II to request financial documents from October 1, 2007 through April 11, 2014, Opp. at 7, Sage informed IHS that it had no right to the earlier documents, and IHS relented. See Ex. A 4 & Att. 1. In addition, Moss Adams was so disorganized that it asked for and received many of the same documents up to four times, and Sage satisfied every request for documentation made by Moss Adams for the appropriate time period. Ex. A 5 and Att. 2. On advice of outside counsel, Sage Board members and other Sage officials, including Mr. Razaghi, made themselves available to Moss Adams throughout the process, until a federal grand jury in 10
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 16 of 22 Arizona issued a subpoena to Sage and FBI agents began questioning the Board members. Ex. B 6; see Lodging (Dkt. 21) at 342 (IHS report states that Board member interviews were completed as a group with their attorney present, Mr. Franklin Hoover... ). At no time did Moss Adams request to interview Mr. Razaghi, although he stayed at Sage several days waiting for them to do so; neither did IHS. Ex. C 8. B. The Grounds Stated in IHS Declination Letter Are Without Foundation. As IHS Opposition states, IHS was motivated to perform its review by allegations of disgruntled Sage ex-employees reported widely in the press, and by a request from the Chairman of the Navajo Nation Council s Health, Education and Human Services Committee ( HEHSC ). See Opp. at 6 and Ex. 1 3, 5-6. The Committee was also motivated by these same people. Ex. D 5. The ex-employees were, in turn, motivated by the usual bitterness and also by ethnic bigotry. Ex. D 5 & Att. 3. 5 IHS speculative concerns and erroneous conclusions spring from these individuals campaign. IHS Opposition reproduces the major findings from IHS declination letter. Opp. Ex. 3. The very first one, a theme of the ex-employees, is that services have been eliminated... since the first SMH contract was awarded in 2003. Id. at p.4 (emphasis added). To the extent this statement is true, it is utterly irrelevant to whether Sage has properly performed the PFSAs listed in the 2010-2013 agreement that Sage proposed to continue to perform in the proposed 2014-2016 agreement. 5 One message, entitled Muslim Parasites, reminds former Sage doctor and Navajo tribal member Cal Lauber that the Muslim faith demands that Muslims lie, cheat, steal and murder nonbelievers ; a reply to Lauber s statement that [a] number of us are organizing a number of things that will effectively remove Ahmad [Razaghi] described Razaghi as that little midget piece of shit. Ex. D Att. 3. 11
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 17 of 22 It was prior to 2007 (and prior to the Sage Board s engagement of the management companies) that Sage was forced to terminate general surgery (including orthopedics and ophthalmology) and obstetrical care for lack of adequate facilities and/or qualified staff, and Sage s agreement with IHS through 2008 required Sage to perform only (1) contract health services and (2) dispensing pharmaceutical drugs and medical supplies. Mot. for Inj. (Dkt. 17) Ex. C 8, 12. After settling Sage s litigation with IHS, Sage first agreed to perform a wide range of PFSAs in a 2009 agreement, and Sage has performed those PFSAs ever since, with no diminution in services. Id. 12. IHS has never even asserted, much less clearly demonstrat[ed], see 25 U.S.C. 450m, otherwise. Similarly, IHS relied on its conclusion that the Sage Board in FY 2014 failed to comply with I.H.S. Grants Management requirements for Special Diabetes Program Initiative funding resulting in a lost revenue opportunity. Opp. Ex. 3 9. That is similarly irrelevant and, in any event, false. Ex. D 3 & Att. 1. IHS s other justifications concern potential OSHA violations, supposed violations of Sage s own policies including self-dealing by Board members, payments to or for the benefit of Razaghi under his arms-length contracts with the Board, 6 and concerns about Sage s internal controls. Opp. Ex. 3. These are derived from the Moss Adams report and summarized at pages 8-12 of IHS Opposition, to which Sage now replies. Reliance on the Moss Adams report was and is flawed. Its cover letter to Defendant Dayish dated July 25, 2014 states that [w]e were not engaged to, and did not conduct an audit or 6 The Board was separately represented during the negotiations of such contracts by a Flagstaff, Arizona law firm. Ex. C 3. 12
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 18 of 22 examination, the objective of which would be the expression of an opinion on the records, controls, and activities of [Sage]. Accordingly, we do not express such an opinion. Lodging (Dkt. 21) at 431. Consequently, Moss Adams is said by IHS to have uncovered numerous concerns. Opp. at 8 and Ex. 2 7. Moss Adams observations are qualified by such words as apparently, it disclaimed any ability to verify whether the Board properly approved certain payments, and it attributed its inability to determine various matters on the false claim that Sage did not provide requested documents. Opp. at 9-11. Even IHS concludes by saying that the Sage expenditures have become possibly unlawful and improper. Opp. at 31 (emphasis added). All of these concerns are irrelevant to this case. Consistent with the Act, the Sage/IHS contract provides that, [e]xcept as specifically provided in the [ISDEAA], Sage is not required to abide by guidelines, manuals, or policy directives of the Secretary... Lodging (Dkt. 21) at 18-19; accord 25 U.S.C. 450l(c), Model Agreement 11; Handbook at pp. 5-16 to 5-17 (tribal organization s performance of contract shall have no effect on the contract renewal process). The Secretary has no lawful power to oversee the internal governance of any tribal organization and unilaterally sever the contractual relationship if she disapproves of the manner in which the organization chooses to carry out its PFSAs. Defendants do initiate the Moss Adams discussion with one unequivocal finding of Moss Adams: Moss Adams found that Sage routinely terminated auditors each year. Opp. at 8 and Ex. 2 6. That finding of Moss Adams, adopted by IHS, is utterly false. For the eight fiscal years from 2007 through 2014, Sage has employed three auditing firms, Eide Bailey from 2007 through 13
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 19 of 22 2010, Wipfli in 2011, 7 and Bradshaw Smith from 2012 through 2014. Ex. A 8. Board reimbursements have been reasonable, although the eight-member Sage Board has had to meet more often in recent years to respond to the attacks mounted on Sage by the ex-employees and by IHS. Ex. B 5; cf. Opp. at 9 (first bullet). Indeed, the total of Board travel expenses for FY 2013 was $61,942 ($645 per month per Board member), less than the five-year average of $66,820. Ex. B 5. Moss Adams concern with the increase of the Board stipend from $250 to $500 per meeting, Opp. at 9 (fourth bullet), is ludicrous. 8 The Navajo Nation Council enacted a law in 2010 providing that Chapter officers and other Navajo officials would receive $500 per meeting, and the Chapter officers, like Sage Board members recently, are expected to meet twice per month. Ex. B 5 & Att. 2 (copy of tribal law). By comparison, each of the twelve Board members of IHS favored Fort Defiance Indian Hospital receives a stipend of $1200 per meeting plus expenses. Ex. B 5. IHS seeming fixation with the Board awarding itself the gifts of computers and ipads, e.g., Opp. at 9 (second bullet), Ex. 3 at p. 4, and Ex. 2 7; Lodging (Dkt. 21) at 326, is likewise no cause for concern. That property (which cost $13,446.37, not $32,060.93, as Moss Adams found ) is listed as property of Sage, not of the individual Board members, and a 2013 survey of hospitals and healthcare systems found that 59% of hospitals provide Board members with tablets or laptops. Ex. A 9 & Att. 3,4. Moss Adams also expressed specific concerns with stipends paid to Board 7 Wipfli was terminated after one year because it missed deadlines and had repeatedly changed its principal auditor for the Sage engagement in violation of promises it made to Sage. Ex. B 4. 8 The IHS paid Moss Adams partners over $300 per hour for producing its non-opinion. Ex. A 10 & Att. 5. 14
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 20 of 22 members in connection with a Hawaii conference. Opp. at 9 n.5. Sage was specially invited to that conference (which consisted mostly of tribal leaders), and the payment of the stipends conformed to Sage s policies. Ex. B 7. IHS errs in stating that the Sage Board approved a $1.8 million bonus to Mr. Razaghi. Opp. at 9 (third bullet). In fact, the Board approved such a contractually-supported bonus (for a fiveyear period after the turnaround was completed successfully) to Razaghi Healthcare. Ex. C 3. Razaghi Healthcare is a company with employees and contracted expertise that was using its revenues to, for example, plan for the much needed Ganado Outpatient Medical Center until that development was derailed by the ex-employees and IHS. Id. Moreover, contrary to IHS understanding, Opp. at 9 (third bullet), there was indeed a fair market review performed prior to the Board s decision on the bonus amount, and a confirming study after the amount of the bonus was criticized by the ex-employees in the press. Ex. C 3. Both found that the bonus amount was reasonable and well within fair market parameters. Id. The severance compensation for Razaghi personally also conformed with contract provisions. Ex. C 3; cf. Opp. at 10 (first bullet). The arms-length contracts with Sage also protected Razaghi from liability from suit for his actions taken in good faith while he was engaged there, regardless of whether Sage was a named party. Ex. C 4; cf. Opp. at 11. That is standard for corporate officials. When Razaghi determined that there was no longer a need to attract and retain professionals through a separate company that was established by M Morgan & Associates, and that continuing to use that company would cause Sage extra expense, Razaghi terminated the relationship between Sage and the other company and was sued by his brother, who worked for and had an ownership interest in that company. Ex. C 15
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 21 of 22 4. Sage s counsel determined that Razaghi was entitled to indemnification for that suit under the applicable contract. Notably, Razaghi also received coverage from another insurer not associated with Sage, and Razaghi promptly remitted all of the proceeds from that insurer to Sage, some $231,560.72. Ex. C 4 and Att. 1. 9 The other two main concerns raised by Moss Adams and relied on by IHS concern Sage procurements. Opp. at 10 (second bullet) and 11 (first bullet). Contrary to the implications of those paragraphs, Sage did follow its procurement policies for both the Razaghi Healthcare contract and Four Seasons Construction, a Navajo-owned company in the area with a good track record in dealing with Sage s campus and aging physical plant. Ex. C 5. What is missing from IHS and Moss Adams concerns is any recognition of the unrebutted fact that Sage overhead, including Board stipends and expenses and payments to Razaghi Healthcare and related companies, has decreased steadily over the years in both percentage (from 41.9% to 24.5%) and absolute (from $9 million per year to $8 million per year) terms, even as total revenues have almost doubled. Mot. for Inj. Ex. D 8(D). IV. CONCLUSION IHS violated the ISDEAA and its implementing regulations in failing to renew Sage s term contract and the successor AFAs. Sage is entitled to the immediate injunctive relief provided for in 25 U.S.C. 450m-1(a), compelling the Secretary to immediately execute and fully fund Sage s proposed three-year contract renewal and FY 2014 AFA and the FY 2015 successor AFA to the 9 Moss Adams also criticized Razaghi for settling a medical malpractice suit. That settlement was made with the active participation of the Arizona United States Attorney s office under the Federal Tort Claims Act, and Sage was not required to contribute any money to the settlement amount. Ex. C 7. 16
Case 1:14-cv-00958-JB-GBW Document 41 Filed 02/11/15 Page 22 of 22 extent funding does not exceed that of the 2014 AFA, and granting Sage its attorneys fees, costs and such other relief as the Court deems just and reasonable. Respectfully submitted, FRYE LAW FIRM, P.C. By: s/ Paul E. Frye Paul E. Frye 10400 Academy Rd. NE., Suite 310 Albuquerque, NM 87111 Tel: (505) 296-9400 Fax: (505) 296-9401 Attorneys for Plaintiff Sage CERTIFICATE OF SERVICE I hereby certify that on February 11, 2015, I filed the foregoing with the Clerk of the Court using the CM/ECF system, which will send notification of such filing to the parties of record in this matter. s/ Paul E. Frye Paul E. Frye 17