Free Reply to Response to Motion - District Court of Federal Claims - federal

Case 1:01-cv-00517-MBH

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United States Court of Federal Claims

GHS Health Maintenance Organization, Inc., d/b/a BlueLincs HMO, Texas Health Choice, L.C., and Scott & White Health Plan, Plaintiffs, v. United States, Defendant.

No. 01-517C Judge Marian Blank Horn

Plaintiffs Scott & White Health Plan and Texas Health Choice, L.C.'s Reply Memorandum in Support of Plaintiffs' Motions to Strike the Declaration of Nancy Kichak and References Thereto in Defendant's Memoranda

Introduction The Government's defense of its reliance on the declaration of OPM official Nancy Kichak is breathtaking in its audacity. The Government writes: The United States Court of Federal Claims, as well as the United States Court of Appeals for the District of Columbia Circuit, have allowed the administrative record to be supplemented in certain situations. . . . Ms. Kichak's declaration will assist the Court in understanding clearly and fully the issues. OPM Opp. at 5. Yet the Government argued precisely the opposite when it suited its purposes to do so. In an earlier filing in this litigation, the Government stated: "As set

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forth above, Plaintiff in this case seeks a declaratory judgment that 48 C.F.R. § 1652.21770(b)(6) is invalid on its face or invalid as to how it applies to Plaintiff. Without addressing the merits of Plaintiff's case, Defendant respectfully submits that discovery is inappropriate here, because it is well established that review of such an APA claim is limited to the administrative record."1 Case law demonstrates that the Government's earlier statement was correct. Its current position is adopted out of the apparent recognition that on the administrative record alone, it cannot save the challenged regulation, as evidenced by its assertion that it would be "prejudiced" if the Court did not consider Ms. Kichak's declaration. The final ten pages of the Government's opposition use the Ms. Kichak's declation to once again address the merits of the parties' underlying dispute. Scott & White and Texas Health will not respond to those statements in this memorandum, except to note they obviously disagree with the Government's characterizations of this case. Instead, Scott & White and Texas Health will establish that, notwithstanding the Government's assertions to the contrary, the administrative record alone must serve as the basis for the Court's evaluation of the validity of the regulation at issue in this case.

See Defendant's Memorandum in Support of Motion for a Protective Order (attached as Exhibit B to Scott & White and Texas Health's Motion to Strike) at 2 (emphasis added).
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Argument in Reply I. Supplementation of the Administrative Record Is Impermissible in This Case. The Government claims: Supplementation is permitted . . . when a case is so complex that a court requires more evidence to enable it to understand clearly and fully the issues. These principles were established in Esch v. Yeutter, 876 F.2d 976, 991 (D.C. Cir. 1991).2 Despite the Government's attempts through lengthy briefing to dress this up as a complex case, it is not a complex case. The parties stipulated to 46 undisputed facts on which the case turns. Those facts describe, to the full extent relevant to this case, how the Federal Employees Health Benefit Program works. In any event, the Government's reliance on Esch v. Yeutter is misleading, because that case stands four-square against the Government's argument. In Esch, the court wrote: It is well settled that an agency is legally bound to respect its own regulations, and commits procedural error if it fails to abide them. The Department has adopted regulations specifying the procedures to be followed on administrative appeals, and appellees insist that in several respects they have been ignored. The Department, on the other hand, invokes the familiar rule that judicial review of agency action is normally to be confined to the administrative record. That principle exerts its maximum force when the substantive soundness of the agency's decision is under scrutiny; in the present case, the procedural validity of the Departments action also remains in serious question. Particularly in the latter context, it may

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OPM Opp. at 4. 3

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sometimes be appropriate to resort to extra-record information to enable judicial review to become effective. Esch, 876 F.2d at 991. This is a case in which "the substantive soundness of the agency's decision is under scrutiny." Id. The procedural validity of the regulation has not been challenged. Accordingly, this is a case in which "the familiar rule that judicial review of agency action is normally to be confined to the administrative record" exerts "its maximum force." Id. Thus, the Government's leading authority establishes that the declaration should be stricken. The next case cited by the Government also belies the Government's position. In Cubic Applications v. United States, 37 Fed. Cl. 339 (1997), a contractor who had filed a bid protest action sought expedited discovery and to limit the administrative record, and the Government moved "to designate the entire administrative record existing at the General Accounting Office as the administrative record to be reviewed by this court." Id. at 341. This Court observed that "[f]he focal point for judicial review `should be the administrative record already in existence, not some new record made initially by the reviewing court.'" Id. (quoting Camp v. Pitts, 411 U.S. 138, 142 (1973)). For that reason, the Court wrote, "'post hoc' rationalizations by the agency are afforded little weight." Id. (citing Citizens to Preserve Overton Park, Inc. v. Volpe, 401 U.S. 402, 419 (1971)).3 The Court concluded that the

In Citizens to Preserve Overton Park, the Supreme Court commented: "The lower courts based their review on the litigation affidavits that were presented. These affidavits
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affidavits challenged by the plaintiff had no "evidentiary weight under any of the Esch exceptions." Id. at 344. And the affidavits in that case had been part of the proceeding before the GAO that was under review, unlike the Kichak declaration, which was created solely for purposes of this litigation. The Government knows this is the law. In its reply brief on the merits, filed the same day as its motion to the motions to strike, the Government itself cites Camp v. Pitt, 411 U.S. 138 (1973) for the proposition that if the "rationale for agency action is not sustainable on the administrative record, the court should vacate decision and remand to agency for further consideration."4 The Government's reliance on AT&T Information Systems, Inc. v. GSA, 810 F.2d 1233 (D.C. Cir. 1987), is surprising. According to the Government, AT&T stands for the proposition that the "record may be supplemented to provide explanatory background information."5 The Government's summary, once again, is misleading. In AT&T, the court noted that APA review "must be based upon the `whole record.' The Supreme Court has made clear that the `whole record' consists of the administrative record compiled by the agency in advance of litigation, not any record thereafter constructed in the reviewing

were merely `post hoc' rationalizations, which have traditionally been found to be an inadequate basis for review." Citizens to Preserve Overton Park, 401 U.S. at 419 (citations omitted). Defendant's Reply to Plaintiffs' Opposition to Defendant's Cross-Motion for Summary Judgment at 8.
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OPM Opp at 4. 5

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court."

Id. at 1236.

The Court continued:

"This rule applies to informal agency

proceedings like those involved in this case, and we have repeatedly applied it to bar introduction of litigation affidavits to supplement the administrative record." Id.

(emphasis added).6 Similarly, in GraphicData LLC v. United States, 37 Fed. Cl. 771 (1997), which the Government also cites, this Court held: "Initially, the judge should determine whether the agency action before the court is susceptible to a record review. If the answer is yes, the judge must limit review to the record." Id. at 780 (emphasis added). The Government has contended and could not seriously argue that the Court is incapable of reviewing the challenged regulation based solely on the administrative record ­ particularly given that the Government has previously argued to the contrary in this very case. II. In Accord with This Court's September 19, 2005 Order, This Court Should Not Consider the Declaration of Nancy Kichak. Statements littered throughout the Government's brief demonstrate why consideration of Ms. Kichak's declaration is inappropriate. For example, the Government asserts that "Plaintiffs rebut none of Ms. Kichak's statements with any evidence or facts."7 But this not the time for Plaintiffs to be introducing evidence or facts. As discussed above,

The court cited: Walter O. Boswell Memorial Hosp. v. Heckler, 749 F.2d 788, 792-94 (D.C. Cir. 1984); Envtl. Def. Fund, Inc. v. Costle, 657 F.2d 275, 285-86 (D.C. Cir. 1981); and Rodway v. USDA, 514 F.2d 809, 816 (D.C. Cir. 1975).
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OPM Opp. at 9. 6

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the validity of the challenged regulation must be decided on the administrative record. For this reason, it would not matter if it were correct that "Ms. Kichak's statements are hardly controversial."8 What matters is they are outside of the administrative record and therefore cannot assist the Court in evaluating the regulation. Moreover, by its Order of September 19, 2005, the Court required the parties to file "a joint stipulation of facts setting forth specific agreed upon facts with appropriate citations to the appendix to identify whether there are disputed material facts in the case and to assist in the summary judgment motions." Order (Docket Entry #39, Sept. 19, 2005. Plaintiffs understood that the facts contained in the stipulation were to serve as the basis for the parties' summary judgment motions. The parties' Joint Stipulation of Facts, filed on December 8, 2005 (two days after the Government filed Ms. Kichak's declaration with the Court) does not include the assertions contained in Ms. Kichak's declaration, nor does it reference the declaration. Consequently, in light of the Order of this Court, the assertions in the declaration should not be considered. The Court's Order was not limited to briefing involving Plaintiffs' facial challenge. It also applied to briefing on Plaintiffs' as-applied challenge to the regulation. In any event, Ms. Kichak's declaration shines no light on Plaintiffs' as-applied challenges. Plaintiffs have argued that even if the challenged regulation were facially valid, it still is not valid as

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OPM Opp. at 12. 7

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applied to Plaintiffs, because the only rationale for the regulation contained in the administrative record ­ that "it is difficult to get adequate data from plans when they have terminated," 55 Fed. Reg. 27406 (1996) ­ does not apply to Plaintiffs, from whom it was not difficult to get adequate data and, indeed, with respect to whom reconciliation was completed successfully. Ms. Kichak's declaration does not purport to refute that argument, nor could it. (Indeed, Ms. Kichak's declaration does not even mention Texas Health or BlueLincs.) III. The Government Is Not Prejudiced By the Exclusion of the Kichak Declaration. The Government's assertion that it was surprised by Plaintiffs' motions to strike Ms. Kichak's declaration defies credulity. The Government could not really have mistaken Plaintiffs' willingness to allow the ministerial act of including the declaration in the appendix as acquiescence to the supplementation of the administrative record with the opinions of an OPM official. Ms. Kichak's declaration was originally filed on May 6, 2002. Scott & White moved to strike it on June 28, 2002, raising the same arguments that Plaintiffs' have raised in the instant motions. See Exhibit A. The Government filed its opposition to the motion on August 26, 2002. See Exhibit B. The motion to strike was still pending when the case was transferred to this Court. The Government could have been under no illusion as to the Plaintiffs' position.

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In any event, the Government has had ample time and space in its voluminous opening and reply briefs on the merits to argue the validity of the regulation within the confines of the administrative record ­ and, as this Court ordered, within the confines of the parties' Joint Stipulation. Presumably, the Government has by now offered every argument that those documents allow it to put forth. Conclusion For the reasons stated above and in Plaintiffs' opening memoranda, Plaintiffs Scott & White and Texas Health respectfully request that the motions to strike the declaration of Nancy Kichak and references thereto in the Government's memoranda be stricken. The Court should not rely on Ms. Kichak's opinions in deciding whether the regulation at issue in this case is invalid. Plaintiff GHS Health Maintenance Organization joins in this reply. May 25, 2006 Respectfully submitted,

Michael S. Nadel McDermott Will & Emery LLP 600 Thirteenth Street, N.W. Washington, D.C. 20005 (202) 756-8000 Attorney for Plaintiffs Scott & White Health Plan and Texas Health Choice, L.C.

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