Quentin K. Tanko v. United States ( 2005 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
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No. 05-1717
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Quentin K. Tanko, *
*
Appellant, *
* Appeal from the United States
v. * District Court for the
* District of Nebraska.
United States of America, *
Department of Health and Human *
Services, Bureau of Health Professions, *
*
Appellee. *
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Submitted: September 15, 2005
Filed: November 3, 2005
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Before LOKEN, Chief Judge, BYE and SMITH, Circuit Judges.
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BYE, Circuit Judge.
Quentin K. Tanko agreed to participate in the National Health Service Corps
(NHSC) Scholarship Program, a program established by Congress to address health
service shortages in medically underserved areas. Tanko accepted scholarship funds
for two years of medical school, but failed to provide the corresponding period of
service in a medically underserved area. He appeals the district court's1 determination
this breach makes him liable for treble damages. We affirm.
I
On February 4, 1999, Quentin Tanko signed four one-year contracts to
participate in the NHSC Scholarship Program, 42 U.S.C. §§ 254l-q. In exchange for
the government's payment of tuition, reasonable education expenses, and a monthly
stipend while attending school, participants in the NHSC Scholarship Program agree
to provide health services in a health professional shortage area (HPSA)2 upon
completion of their training. The four contracts Tanko signed were embodied in a
single document. The first contract covered his first school year, the 1999-2000
school year. Immediately below the signature line following the terms of the first
contract was a line which stated "Optional Contracts." The optional contracts
covered the 2000-01 school year, the 2001-02 school year, and the 2002-03 school
year, with separate signature lines for each contract. Each optional contract simply
adopted the contract terms set forth for the 1999-2000 school year, making those
terms applicable for an additional year.
The contracts set forth the government's remedies in the case of a breach. If
a student cannot provide health services in an HPSA because he must leave school
for academic or disciplinary reasons, voluntarily terminates his schooling, or "fails
to accept payment . . . in whole or in part, of a scholarship under this contract," the
student is only responsible to "repay to the United States all funds paid to the
applicant . . . within 3 years of the date the applicant becomes liable to make
1
The Honorable Richard G. Kopf, United States District Judge for the District
of Nebraska.
2
An HPSA is an area of the country with a high infant mortality rate, high birth
rate, or high rate of poverty. 42 C.F.R. Part 5, App. A.
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payment." If, however, the participant fails to provide his period of service obligation
"for any reason other than those [specified above]," the contracts provide "the United
States shall be entitled to recover an amount equal to three times the scholarship
funds awarded, plus interest." The contract terms essentially mirror the statutory
requirements set forth in 42 U.S.C. § 254o (2001)3 which govern an NHSC
participant's obligations in the event of a breach.
Tanko attended Creighton University during all four of the relevant school
years. He accepted the scholarship funds from the government in his first two years,
for a total of $88,731. On May 5, 2001, however, Tanko advised the government he
was declining scholarship money for the 2001-02 school year. Likewise, on February
10, 2002, Tanko advised the government he was declining scholarship money for the
2002-03 school year.
Tanko graduated from Creighton University School of Medicine in May 2003.
In July 2003, he entered an orthopedic surgery residency training program, a program
not approved as an NHSC postgraduate training program. On September 8, 2003, the
government notified Tanko he was in default for failing to begin his service
obligation of two years. The government told Tanko his debt, including treble
damages, was due on July 1, 2004, and provided him with a schedule showing the
amounts the government paid on his behalf, the dates of those payments, and the
principal and interest due (including treble damages). At that time, Tanko's
obligation totaled $380,964.45.
On February 13, 2004, Tanko brought this action for declaratory relief in
federal district court asking the court to declare the NHSC Scholarship Program
3
The statute was amended on October 26, 2002. See Pub. L. No. 107-251, Title
III, § 313(a), 116 Stat. 1651. The pre-amended version of the statute governs this
case.
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enforceable only to the extent of the actual amounts disbursed to him. Tanko argued
the contracts he signed were a single contract for a four-year period, not four separate
one-year contracts, and thus his refusal to accept payments for the last two
scholarship years triggered the statutory and contract terms which allowed him to
repay just the funds paid to him because he "fail[ed] to accept payment . . . in whole
or in part, of a scholarship under this contract."
The government filed a counterclaim contending it should recover treble
damages. The government argued each school year constituted a separate contract,
and Tanko accepted full payment of scholarship funds for the first two contracts. The
government contended the payment-in-part provision did not apply to those two
years, and Tanko's breach therefore triggered treble damages.
The parties filed cross-motions for summary judgment. The district court
granted the government's motion, concluding Tanko signed four separate contracts,
accepted full payment for the first two contract years, and was responsible for treble
damages for failing to provide the government with two years of service. Tanko
timely appealed.
II
This case involves the interpretation of a contract and the statute upon which
the contract is based. Our review of both is de novo. See Advantage Consulting
Group, Ltd. v. ADT Sec. Sys., Inc., 306 F.3d 582, 585 (8th Cir. 2002) (contract); Am.
Simmental Ass'n v. Coregis Ins. Co., 282 F.3d 582, 591 (8th Cir. 2002) (statute).
The treble damage provisions of the NHSC program, while severe and onerous,
provide no basis for reversing the district court. The treble damages have been
upheld as reasonable because the injury caused by a participant's breach – the loss of
a medical doctor's service in an HPSA – is difficult to calculate. See Buongiorno v.
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Sullivan, 912 F.2d 504, 510 (D.C. Cir. 1990); see also United States v. Citrin, 972
F.2d 1044, 1051 (9th Cir. 1992) (concluding NHSC's treble damage provisions are
not a "penalty" which violates the Due Process Clause).
The governing statute sets forth four instances in which a participant who fails
to provide his service obligation will be required to repay only "the amount which has
been paid." Those four instances are when the participant:
A) fails to maintain an acceptable level of academic standing in the
educational institution in which he is enrolled (such level determined by
the educational institution under regulations of the Secretary),
(B) is dismissed from such educational institution for disciplinary
reasons,
(C) voluntarily terminates the training in such an educational institution
for which he is provided a scholarship under such contract, before the
completion of such training, or
(D) fails to accept payment, or instructs the educational institution in
which he is enrolled not to accept payment, in whole or in part, of a
scholarship under such contract[.]
42 U.S.C. § 254o(a)(1)(A)-(D) (2001). In all other situations where a participant
breaches a contract by failing to begin the service obligation, the statute provides "the
United States shall be entitled to recover from the individual an amount determined
in accordance with" a formula for treble damages. Id. at § 254o(b)(1)(A).
None of the four exceptions to the trebling provision applies to Tanko's first
two contract years. For the 1999-2000 and 2000-01 school years, he accepted the
government funds in whole and did not leave school voluntarily or for academic or
disciplinary reasons. At the end of his training, he breached those two contracts by
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failing to begin his service obligation. Thus, the statute – and the contracts which
directly incorporate the statutory provisions – require Tanko to pay treble damages.
Tanko argues his four separate one-year contracts should be construed as a
single four-year contract. Such an interpretation would place Tanko within the
exception for failing to accept payment "in part" because he declined the scholarship
funds for his last two years of schooling. Tanko relies upon the fact he signed all four
contracts on the same day as part of a single transaction. See Lippo v. Mobil Oil
Corp., 776 F.2d 706, 713 n.13 (7th Cir. 1985) ("Although the franchise agreement is
evidenced by five separate documents, they were executed at the same time between
the same parties, for the same purpose and as parts of a single transaction, and so are
to be read together and construed as a single contract.").
The format and language of the contracts Tanko signed do not support his
argument. The primary contract prominently identifies itself as a contract for the
1999-2000 school year alone. The language used in the "Optional Contracts" which
follow clearly identify them as separate contracts for separate school years, merely
incorporating the language used in the primary contract. In addition, section B.7 of
each contract obligated the applicant to "serve one year of obligated service for each
school year the scholarship is provided, with a minimum obligation of two years."
This language shows the parties intended to enter four separate contracts with a
concomitant period of obligated service tied to each separate year scholarship funds
were provided.
The Ninth Circuit addressed this issue, concluding the exception for failing to
accept payment "in part" applies only when the participant fails to accept partial
payment for any given year, and does not exempt the participant from treble damages
for any year in which he receives full funding:
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We construe subsection (a)(1)(D) to treat each year that a recipient
receives scholarship funds as separate and independent. This is
consistent with the overall incremental structure of the scholarship
program, which imposes a one-year service obligation for each year of
funding (with a two-year minimum). Subsection (a)(1)(D) applies only
in situations where a scholarship recipient signs a written contract for a
given year, and then later, during the course of that year, fails to accept
payment or directs his or her school not to accept payment, in whole or
in part, for that given year. In such situations, the individual does not
incur a service obligation for that specific year, but instead must repay
the government only those funds that had in fact been paid to him or her,
or on his or her behalf, under the contract.
United States v. Williams, 994 F.2d 646, 649 (9th Cir. 1993).
We agree with the reasoning and result in Williams. In this case, Tanko's
refusal of scholarship funds for the last two years of medical school did not affect his
previously-incurred obligation to provide service for the two years for which he did
receive full funding.
Tanko contends Williams is distinguishable because Williams signed his
contracts in three successive fiscal years one at a time, whereas Tanko signed all four
contracts on the same day at the beginning of his schooling. This slight factual
difference is not sufficient to produce a different outcome.4 The relationship between
the government and participants in the NHSC program is not only contractual, but
statutory. United States v. Vanhorn, 20 F.3d 104, 100 (4th Cir. 1994). Tanko's
contention the length of a contract turns upon whether a participant signed multiple
contracts on a single day or in successive years conflicts with the statutory scheme,
4
The ability to sign all four contracts before the first year of medical school
primarily benefits the participant, not the government. A student who may not
otherwise be able to commit to medical school for financial reasons obtains the
government's guarantee of assistance prior to the start of his or her schooling.
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which clearly defines scholarships as "single, one-year unit[s] corresponding to a
given school year." Williams, 994 F.2d at 649 (citing 42 U.S.C. § 254l(f)(1)(B)(iv)).
Thus, neither the contracts nor the statutory scheme supports Tanko's claim.
III
We affirm the judgment of the district court in all respects.
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