Columbus Regional Hospital v. Federal Emergency Management Agency

In the
United States Court of Appeals
For the Seventh Circuit
No. 12-2007
C OLUMBUS R EGIONAL H OSPITAL,
Plaintiff-Appellant,
v.
F EDERAL E MERGENCY M ANAGEMENT A GENCY,
Defendant-Appellee.
Appeal from the United States District Court for the
Southern District of Indiana, Indianapolis Division.
No. 1:10-cv-01168-SEB-MJD—Sarah Evans Barker, Judge.
A RGUED S EPTEMBER 26, 2012—D ECIDED F EBRUARY 20, 2013
Before E ASTERBROOK , Chief Judge, and W OOD and
W ILLIAMS, Circuit Judges.
E ASTERBROOK, Chief Judge. After a flood on June 6, 2008,
in southern Indiana, the President authorized the
Federal Emergency Management Agency to provide
disaster relief. The Stafford Act, 42 U.S.C. §§ 5121–5207,
establishes the terms on which financial aid is available.
Columbus Regional Hospital was awarded approxi-
mately $70 million. It contends in this suit that it is
2 No. 12-2007
entitled to about $20 million more. The district judge
thought not and granted FEMA’s motion for summary
judgment.
The Hospital, the agency, and the district judge all
assumed that a suit seeking money from the United
States belongs in a district court. That was not clear to
us, however, because the Tucker Act, 28 U.S.C. §§ 1346,
1491, allocates to the Court of Federal Claims any suit
seeking more than $10,000 in money damages. (There
is an exception for statutes that contain their own
remedial provisions, see United States v. Bormes, 133 S. Ct.
12 (2012), but the Stafford Act is silent on remedies.)
We issued an order directing the parties to file post-
argument memoranda about subject-matter jurisdiction.
The Hospital told us that it has come to conclude that
the Court of Federal Claims is the right forum, and it
asks us to transfer the suit there. FEMA, by contrast,
contends that the district court has jurisdiction. We
agree with that view, which is consistent with 5 U.S.C.
§702 and Bowen v. Massachusetts, 487 U.S. 879 (1988),
though both the statute and the Supreme Court’s
opinion leave room for legitimate disagreement.
Section 702, which was added to the Administrative
Procedure Act in 1976, waives sovereign immunity for a
suit “seeking relief other than money damages and
stating a claim that an agency . . . acted or failed to act” in
conformity with law. Such a claim may proceed in a
district court; only a request for “money damages” falls
under the Tucker Act and is allocated to the Court of
Federal Claims. But what does “money damages” mean?
No. 12-2007 3
Bowen holds that a suit can seek money without seeking
“money damages.” Massachusetts asserted that it had
received less than its entitlement under the Medicaid
program. The Supreme Court concluded that “damages”
for the purpose of §702 and the Tucker Act are a “substi-
tute for a suffered loss, whereas specific remedies [even
if financial] ‘are not substitute remedies at all, but
attempts to give the plaintiff the very thing to which he
was entitled.’ ” 487 U.S. at 895 (quoting from Maryland
Department of Human Resources v. Department of Health
and Human Resources, 763 F.2d 1441 (D.C. Cir. 1985)). So
compensation for breach of contract is outside the scope
of §702, see Great-West Life & Annuity Insurance Co. v.
Knudson, 534 U.S. 204, 212 (2002), while a demand for
full payment under a grant-in-aid program such as
Medicaid is a request for specific performance rather
than damages. See also Department of the Army v. Blue
Fox, Inc., 525 U.S. 255 (1999) (§702 does not cover claims
that seek a financial substitute for the legally required
performance by the agency); Veluchamy v. FDIC, No. 10-
3879 (7th Cir. Feb. 4, 2013), slip op. 9–14 (same).
Where does disaster relief under the Stafford
Act stand? The Hospital wants money, but not as com-
pensation for FEMA’s failure to perform some other
obligation. Instead the Hospital, like the state in
Bowen, wants money as “the very thing to which he
was entitled” under the disaster-relief program. The
Hospital resists this conclusion, telling us that what
mattered in Bowen was not the status of Medicaid as a
grant-in-aid program, but the fact that the grants
would continue. Thus resolving the state’s dispute with
4 No. 12-2007
the Secretary about one year’s allocation would govern
future conduct as well. That’s true enough, see 487 U.S. at
905, but the Court did not say that only a dispute about
one year’s component of a multi-year program could
be raised under §702. Instead it distinguished between
money as compensation for an injury, and money as the
entitlement under a grant program. The Hospital asserts
an entitlement to money under the Stafford Act. FEMA
disagrees with the Hospital’s substantive position, but if
its claim fails on the merits that does not retroactively
divest the district court of jurisdiction. See Bell v. Hood,
327 U.S. 678 (1946).
To the extent practical considerations matter, they
favor jurisdiction in the district court. The Hospital
invokes not only the Stafford Act but also the APA and
the Federal Tort Claims Act, 28 U.S.C. §§ 2671–80. The
Court of Federal Claims has no jurisdiction over torts;
a FTCA suit must be pursued in a district court. 28 U.S.C.
§§ 1402(b), 2679. The Hospital’s motion to transfer sug-
gested that it could split its claim, with the Stafford
Act proceeding in the Court of Federal Claims and the
FTCA proceeding in a district court, and the APA
theory attached to one or both of these via the doctrine
of ancillary jurisdiction. But that’s a dud: 28 U.S.C.
§1500 requires a party to elect between proceeding in the
district court and proceeding in the claims court. Once a
proceeding is under way in the Court of Federal Claims,
any other suit based on the same operative facts must
be dismissed. See United States v. Tohono O’odham
Nation, 131 S. Ct. 1723 (2011). Only the district court can
serve as a forum for all of the Hospital’s legal theories.
No. 12-2007 5
One last snag: the Hospital invokes the due process
clause of the fifth amendment as a source of recovery. To
the extent that this constitutional theory demands
money as a remedy, it belongs in the Court of Federal
Claims. To the extent that it seeks prospective relief, such
as another hearing, it is within the scope of §702. This
complicates the jurisdictional analysis, but we can
simplify it again because the claim is so weak. The
Hospital seems to think that the Constitution requires
federal agencies to implement statutes and regulations
correctly. That’s wrong. See, e.g., United States v. Caceres,
440 U.S. 741, 749–55 (1979). FEMA’s internal ap-
peals apparatus afforded the Hospital all the process
the Constitution demands, and to spare. The Hospital’s
“due process” claim could be relabeled “due substance”,
which tracks its claim under the Stafford Act. If we were
to transfer the suit to the claims court just because of
a constitutional theory carelessly appended to the com-
plaint, at a time when neither side had given the
Tucker Act a moment’s thought, legitimate theories
might be vaporized. We think it better to say that the
Hospital’s constitutional claim is so feeble that it does
not invoke any federal court’s jurisdiction—not the
district court’s, not the claims court’s. See, e.g., Hagans
v. Lavine, 415 U.S. 528, 542–43 (1974). With the due
process theory gone, we deny the motion to transfer
and proceed to the merits.
FEMA contends that the Hospital’s suit fails at the
threshold because of 42 U.S.C. §5148, which reads:
6 No. 12-2007
The Federal Government shall not be liable for any
claim based upon the exercise or performance of
or the failure to exercise or perform a discre-
tionary function or duty on the part of a Federal
agency or an employee of the Federal Govern-
ment in carrying out the provisions of this chapter.
According to FEMA, everything it does is “a discretion-
ary function,” so there can never be an obligation to
pay more than the agency decides is due. Some func-
tions undoubtedly are discretionary—for example, the
President must decide when to declare a disaster and, if
he does so, set its temporal and geographic boundaries.
Many other activities under the statute, such as estab-
lishing the value of damaged property, also entail discre-
tionary elements. But to leap from this to the proposition
that everything FEMA does is discretionary would be
unwarranted. The Hospital believes that its claim rests
on mandatory rules, whether in the statute or created
by regulation. (FEMA may establish duties where the
Act is open-ended; that’s how the Administrator can
control the conduct of the staff in the field.) Section 5148
does not tell us whether the Hospital is right or wrong
in believing that some rules tie the agency’s hands.
We must take up the Hospital’s claims on the merits.
It has two. First, it contends that FEMA must cover
the replacement cost of equipment and supplies
destroyed by the flood. (Here the Hospital assumes that
FEMA has discretion to decide which property has been
damaged by flood waters; the Hospital’s argument is
limited to the choice between depreciated market value
No. 12-2007 7
and replacement cost for property that FEMA itself
deems covered.) Second, it contends that FEMA should
not have allocated any of its insurance proceeds to prop-
erty damage. We consider these in turn.
FEMA reimburses disaster victims for value of the
property lost—which FEMA calculates as cost (basis)
less depreciation. That’s the standard economic measure
of loss. The Hospital deems it insufficient because, it
says, FEMA’s stance would compel it to buy used equip-
ment to replace the lost gear, yet insurers and regu-
lators (and prudent management) call for new medical
equipment. Since it must replace the damaged equip-
ment with new equipment, the Hospital contends, it
is entitled to the cost of new equipment.
Perhaps FEMA might undertake to cover replacement
cost, but it has not done so. It has made a judgment
that depreciated cost is the measure of loss. The
Hospital does not point to any statutory language, or
any regulation, requiring FEMA to reimburse the cost
of new equipment, so §5148 blocks this aspect of the
Hospital’s suit.
The best the Hospital can do is point to 42 U.S.C.
§5151(a) and 44 C.F.R. §206.11(b), which it reads as re-
quiring FEMA to cover victims’ losses in an “equitable
manner” and not discriminate on the basis of “economic
status.” A millionaire whose lawn mower is swept away
gets the same payment as a grocer who loses the same
model of lawn mower. This does not help the Hospital,
however. It asked for favorable treatment, not the
same treatment other businesses receive. If a fast-food
8 No. 12-2007
restaurant gets the depreciated value of a fryer or
milkshake mixer, a hospital gets the depreciated value
of a magnetic resonance imager. Applying the same
valuation principles to all persons who lose property in
a flood does not violate the statute or the regulation.
And FEMA’s approach makes sense. It gives all
victims the value of what they lost, and no more. Disaster
benefits are a subsidy, and no one is entitled to a
greater subsidy than the statute mandates. Suppose a
particular piece of medical equipment, with an expected
life of 20 years, had been in use for 10 years before
being wrecked by a flood. Then the hospital loses the
value of 10 years’ use of the machine, not the value of
20 years’ use. If it buys a new, 20-year machine, and
receives from FEMA the depreciated (10-year) value of
the old machine, it gets exactly the right compensation
for what was lost. The Hospital does not offer any
reason why a disaster-relief program should (or
would) provide a payment that in effect extends the
useful life of the machine from 20 years to 30 years. By
the Hospital’s lights, if a piece of equipment had
been ruined a single day before it was scheduled for
replacement, FEMA would have to pay for the cost of a
brand new replacement. That would be absurd; it
would give the Hospital a windfall.
At oral argument we asked the Hospital’s lawyer
what should happen if the flood had carried away a
box of single-use syringes that initially contained
20 syringes, 19 of which had been used. The Hospital ob-
viously would replace this with a new box of 20 syringes
No. 12-2007 9
rather than scour eBay for a box with only one left.
What, we asked, should FEMA pay for the lost box con-
taining one syringe? Counsel answered: the cost of a
new box of 20 syringes. This answer has the virtue of
consistency but exposes the silliness of the Hospital’s
position, since all it lost was one syringe. Likewise if
an autoclave with one useful year of life remaining
(before the flood) is ruined, the Hospital should receive
the value of one year’s use, not the cost of an autoclave
that will be good for 20 or 50 years to come. The
Stafford Act is not designed to make hospitals or any-
one else better off than they were before disaster struck.
According to the Hospital, one of FEMA’s employees
promised reimbursement for the cost of new equipment.
That promise, if made, lacks legal significance. No
field employee can commit the agency to pay more
than the statute and regulations require. The
Hospital’s submission sounds like a claim of estoppel, but
the United States and its agencies cannot be estopped
without detrimental reliance, see Office of Personnel
Management v. Richmond, 496 U.S. 414 (1990), and the
Hospital proclaims that it did not rely on this
employee’s statements. To the contrary, the Hospital
says that it was required to obtain new equipment
no matter what FEMA did or said. Richmond leaves
open the question whether estoppel ever can support
an order requiring the Treasury to pay money, and we
need not tackle that issue given the Hospital’s steadfast
view that the purchase of new supplies and equipment
was essential independent of the disaster-relief decision.
10 No. 12-2007
The Hospital also tells us that one FEMA employee
wondered aloud why the agency should seek out ways
to pay more to a well-endowed entity that already stood
to receive $70 million. That’s discrimination based on
economic status, the Hospital insists. Yet the Hospital
does not contend that anyone else has received disaster-
relief payments calculated by reference to the cost of
new equipment. Without a difference in outcome,
there cannot have been discrimination based on
economic status.
The parties’ second dispute concerns the significance
of proceeds the Hospital received from insurance. The
statute does not allow reimbursement if the victim
has another source of payment. 42 U.S.C. §5155(c). In
other words, the collateral-source rule of tort law does
not apply to disaster relief. The Hospital’s insurance
covered both property losses and business-interruption
losses; the Stafford Act is limited to property losses.
The Hospital’s insurer paid out the policy limit of
$25 million without allocating between property loss
and business-interruption loss. FEMA concluded that
property damage represents roughly two-thirds of the
Hospital’s losses within the policy’s scope, so it
attributed roughly $16 million of the insurance proceeds
to the property damage and deducted that sum from
the amount otherwise payable from federal funds. The
Hospital does not dispute the ratio but does contend
that no deduction should have been made.
The Hospital tells us that it used the whole $25 million
to cover expenses such as salaries and the costs of
No. 12-2007 11
moving patients, and none on new equipment and sup-
plies. Since the district court did not hold a trial, we
must accept this statement. According to the Hospital,
insurance coverage must be attributed to whatever the
proceeds are used for. But why? Money is fungible. See
Boim v. Holy Land Foundation for Relief and Development,
549 F.3d 685, 698 (7th Cir. 2008) (en banc); United States
v. Robinson, 663 F.3d 265, 270 n.2 (7th Cir. 2011). The
Hospital might have endorsed the $25 million check
over to someone to pay for land on which a new
building was to be constructed, or might have spent
the whole $25 million on new equipment, but neither
choice should affect disaster relief, because neither
choice would affect either (a) how much the Hospital
lost, or (b) how much it recovered from another source.
How a hospital (or any other insured) spends insurance
proceeds has nothing to do with what those proceeds
represent.
The Hospital relies on Hawaii v. FEMA, 294 F.3d 1152(9th Cir. 2002), for the proposition that an applicant for
disaster relief can control, through its spending choices,
how insurance proceeds will be allocated. We do not
find that holding in the ninth circuit’s decision. The
dispute concerned the right way to treat the settlement
of an insurance claim. The insured settled for less than
the policy limit. FEMA took the position that the whole
policy limit is “available” for the purpose of §5155(c)
when the property damage exceeds the policy limit;
Hawaii contended, and the ninth circuit held, that only
the amount received from the insurer is “available” (as
long as the settlement was commercially reasonable).
12 No. 12-2007
That conclusion has nothing to do with the question
whether an insured that receives money from an
insurer can manipulate the disaster-relief program by
choosing how to spend the check. Given §5148, it takes
a statutory or regulatory mandate to compel FEMA to
pay any particular claim. The Hospital does not point
to any language in the Stafford Act or any of FEMA’s
regulations that compels the agency to attach sig-
nificance to any applicant’s decision about how to
disburse insurance proceeds. Indeed, as far as we can
see nothing in the Stafford Act or any regulation
prevents the agency from imputing all insurance
proceeds to covered claims. FEMA did the Hospital a
favor when it allocated a third of the proceeds to
losses outside the scope of the Stafford Act, and thus
deducted only $16 million rather than $25 million
from the Hospital’s claim.
We have now resolved the parties’ disputes. The
Hospital’s invocation of the Administrative Procedure
Act adds nothing to its claim under the Stafford Act.
Although the Hospital at times seems to contend that
FEMA promulgated a regulation without following the
APA’s requirements, it has not identified any regula-
tion within the APA’s scope. Operational decisions
about how to allocate insurance proceeds, and the like,
differ from regulations. So does the FAQ (“Frequently
Asked Questions”) sheet that FEMA distributes to
help applicants understand its rules and policies.
The Hospital’s due process claim is defunct. And we
don’t see what the Federal Tort Claims Act can add;
No. 12-2007 13
failure to provide disaster relief is not a tort under state
law, and without a state-law tort the FTCA is irrelevant.
At all events, the district court dismissed the FTCA
theory because the Hospital had yet to make a proper
administrative claim, which is essential before suit can
be filed. See McNeil v. United States, 508 U.S. 106 (1993).
The Hospital tells us that it now has pursued its admin-
istrative remedies and filed a second suit under the
FTCA. We expect it to be met with a defense of claim
preclusion (res judicata) as well as the observation that
the suit is substantively feeble, but we leave that to
the court where the FTCA litigation is pending.
2-20-13