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United States v. Bills

argued: February 23, 1987.



Author: Weis

Before: WEIS, BECKER, and VAN DUSEN, Circuit Judges.

WEIS, Circuit Judge.

In this appeal, we conclude that defendant physician breached his contract with the government in which he agreed to provide professional services in exchange for a scholarship to complete his medical studies. We will affirm the district court's entry of summary judgment to that extent. We will remand for a recalculation of damages, however, because the government refuses to credit the time defendant spent in biomedical research despite a provision in the statute requiring that result.

The district court entered summary judgment for plaintiff in the amount of $141,656.58. The judgment represents an award of three times the amount the government granted defendant, plus interest, to complete two years of his medical education under the provisions of the National Health Service Corps Scholarship Program. 42 U.S.C. § 254l Defendant has appealed.

Medical students who participate in this program agree to provide their services in health manpower shortage areas after completing professional training in return for the scholarship and stipend support received while in school. The length of obligated service equals either the number of years during which the students received aid from the government or two years, whichever is greater. In the event the student fails to provide the required service, the student becomes liable for treble damages.

Defendant signed a contract setting forth his rights and duties with the Secretary of Health and Human Services. It included a provision that allowed a deferment, not to exceed three years, for beginning the obligated post-graduate service. In June 1979, at the end of his third year of medical school, defendant received a form letter from the Secretary stating that all physicians "must request deferment for and complete" a flexible first year residency in family practice, internal medicine or pediatrics. In the alternative, a scholarship recipient could request deferment for a clinical residency that could be completed within three years. The letter cautioned the reader to consider these conditions before making any post-graduate commitments.

On October 30, 1979, a similar letter was sent to defendant adding a third choice for post-graduate training -- a residency in obstetrics, gynecology or psychiatry. The letter advised that if students desired to enter a surgical internship, they should "pursue only a flexible year of training . . ., serve [their] obligation, and then complete specialty training." Applications for this deferment were to be submitted between March 1, and April 30, 1980.

Additional correspondence followed. A third letter dated March 3, 1980, relayed essentially the same information. A "Notification of Approved Deferment," dated April 1, 1980 and addressed to defendant, informed him that his obligation would be deferred for one year to complete a flexible first-year program that included residencies in family practice, internal medicine or pediatrics. The notice also warned that failure to complete the one year assignment would be considered "cause to invoke the default penalties described in the Scholarship Program Contract [treble damages]."

Despite that notification, defendant wrote to the Secretary on April 9, 1980, requesting a postponement of his service obligation. In that letter, defendant stated he had accepted a position in an orthopedic surgery department requiring a minimum commitment of five years. He also mentioned his intention to enter the National Research Service Award program.

Three weeks later, the Secretary denied the five-year deferment and reminded defendant that orthopedic surgery was excluded from the specialties qualifying for such consideration. The secretary was noncommittal about the Research Service proposal, observing that neither the defendant's qualifications nor interest would guarantee receipt of an award. The letter concluded, "meanwhile, you must either prepare to serve in the National Health Service Corps or accept the financial penalty for failure to complete such preparation."

Seemingly in response, on May 26, 1980, the defendant requested a one-year deferment for "an internship which shall qualify me to serve in the full-time clinical practice of my profession as a civilian member of the Corps."*fn1

This letter apparently crossed in the mail with one from the Secretary dated May 28, 1980, which modified the original prohibition against surgical residencies. Under the new policy, a general surgery residency for one year would be approved if the training included three months of primary care rotations in internal medicine or pediatrics. Students were asked to submit, on or before June 30, 1980, copies of their employment agreements and a signed statement from the director of medical education certifying that the projected training satisfied the primary care provision.

On November 14, 1980, the Secretary once again requested a statement from defendant to substantiate his program's compliance with the three-month primary care requirement. Defendant replied on December 5, 1980, that he could not possibly alter his training program at that late date to include the primary care component.

The Secretary declared defendant in default as of December 22, 1980. Defendant protested that because he had not received a denial of his May 26, 1980 request for a one-year deferment, he had assumed his course of training had been approved. Following this exchange of correspondence, the Secretary began collection efforts, culminating in this suit brought in the District Court of New Jersey in 1984. In the meantime defendant had enrolled in an orthopedic residency, which he completed in 1985. He then received a National Research Service Award and completed a year of biomedical research at the Hospital For Special Surgery, Cornell University Medical College, and Memorial Sloan Kettering Cancer Center in New York. The Secretary rejected the defendant's contention that this research should be credited toward his service obligation on the ground that "our policy is that individuals in default status are not eligible for consideration to fulfill their service obligations" through a research award.

After discovery, the district court entertained the parties' motions for summary judgment. In reviewing the record, consisting mainly of documentary evidence, the court concluded that defendant had breached his contract by reneging on his two-year service obligation. This breach and his failure to satisfy the conditions of his deferment triggered application of the treble damages provision provided in 42 C.F.R. § 62.10(c).*fn2

Because the defendant had not applied for nor secured the Secretary's prior approval, the district court refused to grant the credit for service under the National Research Service Award. The judge reasoned that "to allow students [to unilaterally determine the nature of the service obligation] . . . would vitiate and negate the congressional intent in establishing the program of providing medical care and service in areas currently underserved by medical personnel."

Recognizing that the congressional goal was not to obtain financial remuneration but to meet pressing health needs, the court granted a stay of thirty days so that negotiations might bring about an accommodation "whereby [defendant] will commence to provide services pursuant to the aims of the NHSC program." When the parties were unable to reach an agreement, the court entered judgment for the Secretary.

On appeal, defendant argues that genuine issues of fact preclude summary judgment and that the Secretary's claim for treble damages lacks support in the statute. He also renews his claim that the time spent in ...

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