IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT …Case 1:14-cv-00958-JB-GBW Document 41 Filed...

IN THE UNITED STATES DISTRICT COURTFOR THE DISTRICT OF NEW MEXICO

NAVAJO HEALTH FOUNDATION - )SAGE MEMORIAL HOSPITAL, INC. )

)PLAINTIFF, )

)v. )

)SYLVIA MATHEWS BURWELL, SECRETARY ) NO. 1:14-cv-958-JB-GBWOF 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’ OPPOSITIONTO PLAINTIFF’S MOTION FOR IMMEDIATE INJUNCTIVE RELIEF

FRYE LAW FIRM, P.C. Paul E. Frye10400 Academy Rd. NE, Suite 310Albuquerque, NM 87111Tel: (505) 296-9400Fax: (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 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


TABLE OF AUTHORITIES

I. CASES

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


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


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


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 andconcerns” as its declination of the FY 2014 AFA. Opp. at 16.


§ 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


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 SouthernUte Indian Tribe v. Sebelius, 657 F.3d 1071, 1078 (10th Cir. 2011) (canon of construction favoringIndians 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


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-YEARRENEWAL AND THE AFAs IS CONTRARY TO THE ISDEAA AND ITSIMPLEMENTING 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


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


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


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 self-

determination 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


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


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’

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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 ANDCONCLUSIONS STATED IN THE IHS DECLINATION LETTER AND MOSSADAMS STUDY HAVE NO RELATIONSHIP TO EITHER THE LAWFULNESS OFTHE 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

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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 tribalmember Cal Lauber that “the Muslim faith demands that Muslims lie, cheat, steal and murdernonbelievers”; a reply to Lauber’s statement that “[a] number of us are organizing a number of thingsthat will effectively remove Ahmad [Razaghi]” described Razaghi as “that little midget piece ofshit.” Ex. D Att. 3.

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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 aFlagstaff, Arizona law firm. Ex. C ¶ 3.

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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

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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 repeatedlychanged 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.

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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 five-

year 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 ¶

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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 settlementwas made with the active participation of the Arizona United States Attorney’s office under theFederal Tort Claims Act, and Sage was not required to contribute any money to the settlementamount. Ex. C ¶ 7.

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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 Courtusing the CM/ECF system, which will send notification of such filing to the parties of record in thismatter.

s/ Paul E. Frye Paul E. Frye

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT …Case 1:14-cv-00958-JB-GBW Document 41 Filed...

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