Healey v. Leavitt

485 F.3d 63

Ruth HEALEY, Marcia Lutwin, Jane Kozlowski, Margaret A. Walz, Roger Audette, Marion Morgan, by Her Next Friend Dorothy M. Hiltz, Julia M. Culver, by Her Next Friend Rev. Horace Mitchell, Bertha P. Chiplin, by Her Next Friend Alfred J. Chiplin, Sr., Linda Wierda, Plaintiffs-Appellees-Cross-Appellants Madalyn Rovner, Roland Cote, Florentina Calderon, By Her Next Friend Eva Moreno, Helen Bagwell, Maxine Marmor, Deborah Sergesketter, Katherine Watts, Intervenors-Plaintiffs, v. Michael O. LEAVITT, Secretary of the United States Department of Health and Human Services, Defendant-Appellant-Cross-Appellee National Association for Home Care, Inc., Movant.

Docket No. 06-0525-CV (L).

Docket No. 06-0529-CV (XAP).

United States Court of Appeals, Second Circuit.

Argued: January 26, 2007.

Decided: April 17, 2007.

Gill Deford (Judith Stein, Brad Plebani, Pamela A. Meliso, Willimantic, CT; Alfred J. Chiplin, Jr., Vicki Gottlich, Washington, DC; Sally Hart, Tuscon, AZ; Diane Paulson,

Boston, MA; Edward C. King, Washington, DC; Sarah Lock, Washington, DC; Lenore Gerard, San Francisco, CA on the brief), for Plaintiffs-Appellees-Cross-Appellants.

Jeffrey Clair (Barbara C. Biddle on the brief), for Kevin J. O'Connor, United States Attorney for the District of Connecticut, and Peter D. Keisler, Assistant Attorney General, Department of Justice, Washington, DC, for Defendant-Appellant-Cross-Appellee.

Lawrence S. Lustberg, Megan Lewis, Newark, NJ, for Amicus Curiae The Brennan Center for Justice.

Before KATZMANN, HALL, Circuit Judges, and TRAGER, District Judge.^*

KATZMANN, Circuit Judge.

This case arises out of a class action suit filed on behalf of home-bound Medicare beneficiaries who rely on Medicare coverage for various in-home services provided by home health agencies ("HHAs"). The merits of the plaintiffs' action have already been resolved, and we are called upon to determine whether the plaintiffs are entitled to attorneys' fees under the Equal Access to Justice Act, 28 U.S.C. § 2412 ("EAJA"), and, if so, the scope of that award. We hold that the district court did not abuse its discretion in awarding the plaintiffs attorneys' fees or in reducing the amount of those fees to reflect their overall success in the litigation. It did, however, abuse its discretion in awarding the plaintiffs fees at an hourly rate above the EAJA statutory cap. The decision of the district court is affirmed in part and reversed in part.

I

In 1998, the plaintiffs, a class of elderly and disabled Medicare beneficiaries who faced the reduction or termination of home health care services provided by HHAs, sued the Department of Health and Human Services ("HHS"). The plaintiffs sought declaratory and injunctive relief that would require HHS to compel HHAs to provide greater procedural protections before reducing or terminating home health services provided to Medicare beneficiaries. Because the facts and procedural posture of this case have already been set out in some detail, see Lutwin v. Thompson, 361 F.3d 146 (2d Cir.2004); Healey v. Thompson, 186 F.Supp.2d 105 (D.Conn.2001) ("Healey II"); Healey v. Shalala, No. 98 Civ. 418(DJS), 2000 WL 303439 (D.Conn. Feb.11, 2000) ("Healey I"), we set forth below only such facts as are necessary to resolve this appeal.

When the plaintiffs first brought suit, Medicare beneficiaries confronted with an adverse coverage determination by an HHA could obtain review of that decision only if they satisfied two conditions. First, they had to request that the HHA submit a claim to the Health Care Financing Administration (the "HCFA"), the agency within HHS that then administered Medicare, for those services or items that the HHA believed were not covered. This was commonly known as a "demand bill." Lutwin, 361 F.3d at 149. Second, they had to agree to pay the HHA for the care provided if the HCFA affirmed the adverse coverage determination. Id. To complicate matters further, there was no procedure in place for providing pre-deprivation notice to beneficiaries that their coverage had been reduced or terminated. Accordingly, many beneficiaries may not have even been aware of the "demand bill" review process. Relying on the Medicare statute, 42 U.S.C. § 1395bbb, the plaintiffs challenged this scheme for failing to provide them with: (1) advance written notification of the reduction or termination of coverage; (2) specific reasons for the reduction or termination; and (3) an explanation of the "demand bill" process. They also argued that they were entitled to pre-deprivation review under the Due Process Clause. The magistrate judge and district court agreed with the plaintiffs with respect to their challenges under the Medicare statute and found it unnecessary to reach the plaintiffs' constitutional claim. The district court adopted the magistrate judge's recommendation that it enter a declaratory judgment, establishing that, inter alia, "plaintiffs have a legal right to a written: (1) pre-deprivation statement why the HHA believes Medicare may not . . . cover their services . . . (2) explanation of the circumstances in which a beneficiary has the right to have a demand bill submitted, and (3) disclosure of information regarding a patient's right to appeal." Healey I, 2000 WL 303439, at * 1 (internal quotation marks omitted), adopted by Healey v. Shalala, No. 98 Civ 418(DJS), 2000 WL 436618 (D.Conn. March 1, 2000).

Four months after the district court's decision, HCFA implemented a new system which, inter alia, required HHAs to provide mandatory notice to Medicare beneficiaries when making adverse coverage decisions. HCFA made clear, however, that it believed such notice was required only when the HHA determined that the treatment was not within the scope of Medicare's coverage. Thus, under its view, notice was not required when a beneficiary's treating physician ordered that the home health care be reduced or terminated. Lutwin, 361 F.3d at 150-52. Following these changes, the plaintiffs renewed their challenges to the notice procedures, arguing that the Medicare statute required that Medicare beneficiaries receive notice when an HHA terminates coverage for any reason, not just because it has determined that Medicare no longer covers the treatment, and that the Due Process Clause requires pre-deprivation review of an HHA's adverse coverage determination. Id. at 152. This time, the magistrate judge rejected the plaintiffs' claims, Healey II, 186 F.Supp.2d at 121-22, and the district court adopted his recommendation that plaintiffs were entitled to neither of these forms of additional relief, see id. at 107.

On appeal, a divided panel of this Court held that the Medicare statute unambiguously requires that the HHAs give written notice before they reduce or terminate home health services for any reason, including for lack of physician certification. Lutwin, 361 F.3d at 156; id. at 158 (Winter, J., dissenting). The panel affirmed, however, the district court's conclusion that pre-deprivation review was not required under either the statute or the Constitution. Id. at 158.

The plaintiffs then sought attorneys' fees under the EAJA. The district court determined that the Government's position was not "substantially justified" and awarded fees. Healey v. Leavitt, No. 98 Civ. 418(DJS), 2005 WL 2850163, at *3 (D.Conn. Oct.26, 2005) ("Healey III"). It further held that the "specialized expertise" of the plaintiffs' counsel entitled them to an enhanced rate of compensation under the statute, id. at *4, but that a reduction in the amount of the fee was appropriate to reflect the plaintiffs' lack of success on their claims that they were entitled to pre-deprivation hearings, id. at *5. The Government appealed the district court's holdings that a fee award was appropriate and that the plaintiffs' counsel were entitled to an enhanced rate of compensation. The plaintiffs, in turn, appealed the district court's reduction in the overall amount of the award.

II

The EAJA provides, in pertinent part, that "a court shall award to a prevailing party other than the United States fees and other expenses . . . incurred by that party in any civil action . . . brought by or against the United States . . . unless the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust." 28 U.S.C. § 2412(d)(1)(A). The Government bears the burden of showing that its position was "substantially justified," and to meet that burden, it must make a "strong showing" that its action was "justified to a degree that could satisfy a reasonable person." Pierce v. Underwood, 487 U.S. 552, 565, 108 S.Ct. 2541, 101 L.Ed.2d 490 (1988); Env'l Def. Fund, Inc. v. Watt, 722 F.2d 1081, 1085 (2d Cir. 1983) (internal quotation marks omitted); see also Pierce, 487 U.S. at 565, 108 S.Ct. 2541 (noting that the Government's position must have a "reasonable basis both in law and fact"). The Government's position includes both "the position taken by the United States in the civil action[ ][and] the action or failure to act by the agency upon which the civil action is based," 28 U.S.C. § 2412(d)(2)(D); see also Comm'r, I.N.S. v. Jean, 496 U.S. 154, 159, 110 S.Ct. 2316, 110 L.Ed.2d 134 (1990); Sotelo-Aquije v. Slattery, 62 F.3d 54, 57 (2d Cir.1995), and it is well-established that "the Government's prelitigation conduct or its litigation position could be sufficiently unreasonable by itself to render the entire Government position not `substantially justified,'" United States v. $19,047.00 in U.S. Currency, 95 F.3d 248, 252 (2d Cir.1996); see also Watt, 722 F.2d at 1086 ("The government may lack substantial justification for its position even though it does not insist upon an unreasonable stance through to the resolution of a case."). We review the district court's determination that the Government's position was not substantially justified for abuse of discretion. See, e.g., Pierce, 487 U.S....