author: SHOOB, District Judge.

text:
    Cristobal PEREZ-PEREZ, Petitioner, v. Jack HANBERRY, et al., Respondents. Aristedes MACHADO-MATOS, Petitioner, v. Jack HANBERRY, et al., Respondents. Eduardo CRESPO-GOMEZ, Petitioner, v. Jack HANBERRY, et al., Respondents.
    Nos. Civ. A. C85-221A, C85-1338A and C85-834A.
    United States District Court, N.D. Georgia, Atlanta Division.
    Aug. 15, 1985.
   ORDER

SHOOB, District Judge.

Petitioners are three of the more than 1000 Cuban detainees who have filed individual petitions for habeas corpus review of the Attorney General’s refusal to parole them from the Atlanta Federal Penitentiary. After reviewing these petitions in January 1985, the Court certified that these actions are not frivolous and granted petitioners’ motions to proceed in forma pauperis. The Court entered show cause orders on June 26, 1985, which directed the government to respond and to produce the complete administrative record relating to each petitioner. Also in that June 26, 1985 order, pursuant to petitioners’ motions for appointment of counsel, the Court authorized the appointment of counsel under 18 U.S.C. § 3006A to represent petitioners in these habeas actions.

Objecting to the appointment of counsel under 18 U.S.C. § 3006A, the government moved to stay all proceedings in the approximately 1000 cases in which the Court had authorized the appointment of counsel, pending a decision on appeal of whether counsel may properly be appointed and compensated under 18 U.S.C. § 3006A. To promote a swift and efficient resolution of this issue, the Court has agreed to rule on the government’s objections to appointment of counsel under 18 .U.S.C. § 3006A in these three “test cases” selected by counsel for the government and counsel for amicus, the class of Cuban detainees in Fernandez-Roque v. Smith, C81-1084A. The Court will then consider the government’s motion to certify this order for interlocutory appeal, pursuant to 28 U.S.C. § 1292(b).

The three “test cases” present the following facts. Petitioner Perez-Perez, according to his petition, at one time was free on parole. In 1983 he served eleven days in jail for battery. On September 28, 1984, he was arrested for possession of drugs, but was released for lack of evidence. On October 31, 1984, INS officers took him into custody, and he has since remained at the Atlanta Penitentiary. Citing his unfamiliarity with the English language, his lack of access to his own administrative records, the complexity of his case, and his financial inability to obtain representation, petitioner has moved for appointment of counsel pursuant to 18 U.S.C. § 3006A(g) and 28 U.S.C. § 1915(d).

Petitioner Crespo-Gomez, according to his petition, also at one time was free on parole, but has been in detention in the Atlanta Penitentiary since December 9, 1983. Petitioner alleges that he has been detained because he “was supposed to belong to a vocational program” and because of “an offense on the outside” for which he has completed his sentence of one year. Petitioner’s form motion for appointment of counsel presents the same contentions as that of Perez-Perez, except that petitioner states that he is fluent in English.

Petitioner Machado-Matos states that he has been detained at the Atlanta Penitentiary since June 28, 1983. Although his contentions are not clear in his translated petition, he appears to allege that he is being detained for having committed some offense in the United States and for “small infractions” of prison rules. Apparently, if released on parole, he must complete a twelve year sentence in Florida. His form motion for appointment of counsel raises the same contentions as the other two cases before the Court and states that he cannot read and write English well enough to pursue his case effectively.

In opposing the appointment of counsel under 18 U.S.C. § 3006A(g), the government presents three arguments. The Court will address them in order.

I.

The first of the government’s objections concerns the Court’s jurisdiction over these petitions under 28 U.S.C. § 2241, which in these actions is a prerequisite for appointment of counsel under 18 U.S.C. § 3006A(g). The government argues that jurisdiction lies exclusively under 8 U.S.C. § 1329. It summarizes its argument as follows:

The specificity of the judicial review provisions of the Immigration and Nationality Act, including 8 U.S.C. § 1329, preempts] and preclude[s] review under any general jurisdictional statute, such as 28 U.S.C. § 2241, especially when invocation of the more general statute might result in defeating a basic policy embodied in our immigration laws. Here, that policy is the Congressional ban on the representation of aliens at taxpayer expense in their exclusion and deportation proceedings. 8 U.S.C. § 1362.

Government’s Brief at 2.

A threshold problem with the government’s objection to jurisdiction under 28 U.S.C. § 2241 is that the government ignores the long history of the role of habeas corpus in immigration law, well-established at least since the beginning of this century. More than once the Supreme Court has explicitly held that an alien in custody under an exclusion order may bring a habeas corpus action to challenge its legality. Shaughnessy v. United States ex rel. Mezei, 345 U.S. 206, 213, 73 S.Ct. 625, 629, 97 L.Ed. 956 (1953); Chin Yow v. United States, 208 U.S. 8, 13, 28 S.Ct. 201, 202, 52 L.Ed. 369 (1908); see 2 C. Gordon and H. Rosenfield, Immigration Law and Procedure § 8.6c (1985). It makes no difference that petitioners here do not challenge their exclusion as such, but rather their denial of parole pending exclusion; the Eleventh Circuit Court of Appeals, relying on Mezei, has held that “the decision to parole or to detain an excludable alien is an integral part of the admissions process” and that the Attorney General’s parole decisions are reviewable by district courts. Jean v. Nelson, 727 F.2d 957, 963, 976 (11th Cir.1984), aff'd on other grounds, — U.S. -, 105 S.Ct. 2992, 86 L.Ed.2d 664 (1985); see Mezei, 345 U.S. at 213, 73 S.Ct. at 629 (“Concededly, [petitioner’s] movements are restrained by authority of the United States, and he may by habeas corpus test the validity of his exclusion”). Other courts also have recognized explicitly that an excludable alien may bring a habeas corpus action to challenge denial of parole. See, e.g., Bertrand v. Sava, 684 F.2d 204, 210 (2d Cir.1982); Palma v. Verdeyen, 676 F.2d 100, 105 (4th Cir.1982). Indeed, the government has been unable to cite a single analogous case in which a court has found habeas jurisdiction to be lacking.

Congress has carefully preserved habeas corpus jurisdiction over cases concerning the exclusion of aliens, as is illustrated by the legislative history of the 1961 amendment to the Immigration and Nationality Act (codified at 8 U.S.C. § 1105a):

An alien in custody under an order of exclusion may seek release by testing the lawfulness of his detention through habeas corpus. For thrée-quarters of a century, prior to the decision in [Brownell v. We Shung, 352 U.S. 180 [77 S.Ct. 252, 1 L.Ed.2d 225] (1956) ], habeas corpus was the sole and exclusive method for testing in court an administrative determination that an alien was not entitled to enter the United States; unlawful deprival of his right to enter the country was held to institute unlawful imprisonment to obtain freedom from which habeas corpus lies (U.S. ex rel. D’Amato v. Williams, 193 F. 228 (S.D.N.Y.1909))....
In the Shung case the court did not eradicate habeas corpus as a method of judicial review but said that both habeas corpus and the declaratory judgment suits were available for that purpose____
The committee is convinced, from a review of the impressive body of court decisions involving use of habeas corpus for review of exclusion orders, that restricting an alien in exclusion proceedings to the writ of habeas corpus for judicial review of an order of exclusion deprives him of nothing but gives him every privilege of testing the legality of the proceedings. This includes not only the question of a fair hearing but also the matter of determining that the exclusion has been ordered on a ground specified by Congress____
The committee, after careful study of all the implications, is satisfied that habeas corpus provides a full, complete, and adequate method for judicial review of an exclusion order____

H.R.Rep. No. 1086, reprinted in 1961 U.S. Code Cong. & Ad.News 2950, 2974-76 (citations omitted).

The government’s actual concern is not the Court’s exercise of jurisdiction under 28 U.S.C. § 2241, but rather the derivative result that petitioner will be represented in this action by an attorney who shall be compensated pursuant to 18 U.S.C. § 3006A. That concern, however, does not speak to the Court’s jurisdiction — its power to decide these cases. As demonstrated above, the Court’s authority to exercise jurisdiction over these cases under 28 U.S.C. § 2241 has been firmly established by decades of jurisprudence. Properly viewed, the government’s first argument raises the substantive concern that discretionary appointment of counsel under 18 U.S.C. § 3006A might be inconsistent with Title 8 or with the Criminal Justice Act itself. Thus, the government’s “jurisdictional” argument must fail. As the Eleventh Circuit Court of Appeals has held, “The limited nature of the substantive rights an excluded alien may claim” are not to be confusecfvnth “the jurisdiction of the court to ensure that what rights the alien possesses are vindicated. The court has the jurisdiction to hear the habeas corpus petition of an excluded alien, however limited the substantive protections due him.” Garcia v. Smith, 674 F.2d 838, 840, modified on denial of reh’g, 680 F.2d 1327, 1328 (11th Cir.1982). Therefore, the government’s concern simply presents no jurisdictional question.

Other flaws also plague the government’s argument. As a result of the previously discussed 1961 amendment to Title 8 — which the government conspicuously fails to address in its brief — aliens are expressly limited to habeas corpus proceedings to challenge their exclusion orders: § 1105a. Judicial review of orders of deportation and exclusion

(b) Limitation of certain aliens to habeas corpus proceedings.
Notwithstanding the provision of any other law, any alien against whom a final order of exclusion has been made heretofore or hereafter under the provisions of [8 U.S.C. § 1226] or comparable provisions of any prior Act may obtain judicial review of such order by habeas corpus proceedings and not otherwise.

8 U.S.C. § 1105a(b) (emphasis added). The amendment thus precluded the use of declaratory judgment actions or other procedural means for obtaining judicial review of exclusion orders. Although 8 U.S.C. § 1329 grants jurisdiction to district courts of all causes arising under Title II of the Act, 8 U.S.C. §§ 1151-1362, it fails to specify any procedure to be used to obtain judicial review. Thus, if section 1329 somehow “preempts” habeas corpus jurisdiction, it would appear to eliminate the sole means of judicial review that the Act affords ex-cludable aliens in parole decisions and, in effect, would render itself meaningless. The government has not suggested any alternative means by which judicial review could occur if habeas jurisdiction were displaced.

In addition, the government’s position is not aided by its reliance on cases that have considered how section 1329 might circumscribe a district court’s jurisdiction. Chen Chaun-Fa v. Kiley, 459 F.Supp. 762 (S.D.N.Y.1978), and Martinez v. Bell, 468 F.Supp. 719 (S.D.N.Y.1979), concerned claims that fell outside the scope of section 1329’s grant of jurisdiction — that is, claims not arising under 8 U.S.C. §§ 1151-1362. Those cases rejected the use of 28 U.S.C. § 1331 as a jurisdictional basis when jurisdiction could not also be predicated on 8 U.S.C. § 1329. In the instant case, however, the government concedes that petitioner’s claim to parole under 8 U.S.C. § 1182(d)(5) falls within the scope of section 1329. Thus, no preemption or preclusion of jurisdiction issue arises. As recognized in Martinez, 468 F.Supp. at 726 n. 6, a separate, independent jurisdictional basis may exist concurrently with section 1329, at least so long as all the claims arise under 8 U.S.C. §§ 1151-1362.

Moreover, the Court finds no “conflict” between the Immigration and Nationality Act and the CJA provision allowing discretionary appointment of counsel in a habeas action. Section 1105a(b) of Title 8 specifically authorizes habeas corpus proceedings for excludable aliens, but nowhere does the INA address, either by authorization or restriction, the alien’s use of counsel in those proceedings. The only mention in Title 8 of an alien’s use of counsel at all is section 1362’s grant of the “right to counsel,” “at no expense to the government,” in certain administrative proceedings. Since a habeas action is not an administrative proceeding, section 1362 on its face presents no conflict with the CJA provision allowing discretionary appointment of counsel in habeas cases.

The Court has searched in vain for some legislative “policy” in the INA that might conflict with appointment of counsel under 18 U.S.C. § 3006A(g). Certain policy concerns are apparent from the language of the statute itself. Section 1362, which is styled “Right to Counsel,” is an affirmative grant to all aliens of the right to counsel in exclusion or deportation proceedings, but at no expense to the government. Congress’s extension of the right to counsel to all aliens in these administrative proceedings reflects what Congress apparently regarded as a significant policy interest: the importance of representation by an attorney. The limiting provision “at no expense to the government” was likely considered a fiscally prudent restriction, given that Congress was providing that all aliens shall have the right to counsel in these administrative proceedings. The CJA’s appointment of counsel provisions are in accord: they avoid extending the right to counsel at government expense to all habeas petitioners. No conflict exists simply because the CJA goes on to add flexibility to this general rule by authorizing “discretionary” appointment of counsel in habeas actions. The Court, therefore, finds no conflict between the INA and the CJA’s appointment of counsel provisions.

II.

The government’s second argument is that the CJA “does not permit the appointment of counsel at taxpayers’ expense for excludable aliens who are challenging their civil detention.” Government’s Brief at 14. In essence, the government urges that 18 U.S.C. § 3006A(g) should be construed to authorize discretionary appointment of counsel for habeas petitioners only if they are seeking post-conviction relief. The government relies on statements contained in the report of the House Judiciary Committee, reprinted in 1970 US. Code Cong. & Ad.News 3982, which addressed the 1970 amendment to the CJA that authorized discretionary appointment of counsel.

Addressing this argument, the Court’s “inquiry begins with the language of the statute. In the absence of a clearly expressed contrary legislative intention, the plain language of the statute controls its construction.” Frank Diehl Farms v. Secretary of Labor, 696 F.2d 1325, 1331 (11th Cir.1983). The relevant language of 18 U.S.C. § 3006A(g) is set forth below:

Any person ... seeking relief under section 2241 ... of title 28 may be furnished representation ... whenever the court determines that the interests of justice so require and such person is financially unable to obtain representation. Payment for such representation may be as provided in subsections (d) and (e).

These habeas petitioners fall within the “plain language” of this subsection. The breadth of the term “any person” demonstrates that the statute was meant to apply to everyone, without exception. These petitioners are “seeking relief under section 2241,” as the preceding discussion has demonstrated. Thus, according to the plain meaning of the statute, petitioners may be considered eligible for discretionary appointment of counsel under subsection 3006A(g).

To negate the plain language of the statute, the legislative history must show a “clearly expressed contrary legislative intention.” Frank Diehl Farms, 696 F.2d at 1331. None exists here. According to the government, the legislative history shows that Congress’s reference to section 2241 was intended to benefit only “federal prisoners convicted in federal courts.” Government’s Brief at 15. The legislative history does indicate that the major concern of the 1970 amendment to section 3006A was the representation of criminal defendants. It does not indicate, however, that post-conviction relief for criminal defendants was Congress’s sole concern. If Congress had wanted to limit subsection (g) to persons seeking post-conviction relief, it could easily have inserted in the statute the term “post-conviction” before “relief.” Instead, Congress saw fit to use very broad language extending subsection (g)’s coverage to “any person ... seeking relief under section 2241.”

More to the point, however, the legislative history relied on does not even support the government’s proposed construction. That paragraph provides as follows:

Finally, section 1(g) provides for compensation of counsel appointed for persons seeking collateral relief under sections 2241, 2254, or 2255 of title 28, or section 4245 of title 18, where the interests of justice so require and the person is financially unable to obtain representation. Section 2241 of title 28 provides for habeas corpus for Federal prisoners convicted in Federal courts and section 2254 provides for habeas corpus for State prisoners convicted in State courts. Motions to vacate Federal sentences are allowed under section 2255 of that title and section 4245 of title 18 provides for a post-conviction hearing when there is probable cause to believe a person was mentally incompetent at the time of trial and the issue was not raised during the trial; 18 U.S.C. 4244, which provides for an ancillary motion on the issue of competency to stand trial, is not specifically mentioned in this subsection because it would be covered under section 1(c) as an “ancillary matter related to the (trial) proceeding.”

H.R.Rep. No. 91-1546, reprinted in 1970 U.S.Code Cong. & Ad.News 3982, 3992-93. The first sentence of the above paragraph describes what the statute provides for: “compensation of counsel appointed for persons seeking collateral relief under sections 2241, 2254, or 2255 of title 28, or section 4245 of title 18.” Petitioners here fall within that definition. The government attempts to rely instead on the next sentence’s terse and incomplete description of section 2241. Habeas relief under section 2241 is not limited to post-conviction relief, and it is unreasonable to assume that Congress in 1970 was unaware of section 2241’s functions in other contexts, such as in the immigration field, in cases challenging civil commitment to mental institutions, and in other areas. See R. Sokol, Federal Habeas Corpus 20 (2d ed. 1969) (discussing various contexts in which habeas corpus applies). This misleading description of section 2241 appears to have been nothing more than an oversight or a shorthand reference to identify that statute. Accordingly, it can no way be regarded as the “clearly expressed contrary legislative intention” necessary to negate the statute’s plain language.

The other portion of the legislative history relied on by the government can, in fact, be read to support the application of subsection (g) here. Petitioners, like most of the Cubans detained at the Atlanta Penitentiary, are there because of alleged past criminal conduct. Their detention is “technically civil in nature, rather than criminal____ The distinction between civil and criminal matters, however, has become increasingly obscure where deprivation of personal liberty is involved.” H.R.Rep. No. 91-1546, reprinted in 1970 U.S.Code Cong. & Ad.News 3987-88. In short, neither these passages nor anything else in the legislative history demonstrates the “clearly expressed contrary legislative intention” required to override the statute’s plain language.

Finally, the Court dismisses the government’s strident assertion that Congress could not have intended to make appointment of counsel available to every detained alien who files a habeas petition. The appointment of counsel under subsection (g) is not a matter of right, but one of the court’s discretion, guided by the criteria within the statute. It is entirely reasonable to conclude that Congress created this flexible provision to be applied in unforeseeable circumstances that tax the abilities of our government to do justice, such as the circumstances presented by the Mariel boatlift.

III.

The government’s third argument is that the Court abused its discretion by authorizing appointment of counsel without individualized review. According to the government, “It is apparent that the Court did not, in issuing approximately 1200 orders the same day, individually weigh the merits of each case.” Government’s Brief at 18. Although only these three “test cases” are now properly before the Court, the government is nonetheless mistaken in its characterization of the Court’s handling of the large group of petitions. In January 1985 the Court and its staff did review the mass of petitions and closely checked each petitioner’s stated financial status before allowing the petitions to be filed in forma pauperis. At that time the Court also determined that the petitions, including these three now before the Court, stated causes of action and that they would survive motions to dismiss, especially in light of the lenient standards of pleading applied to pro se petitions. Moreover, at this stage of the proceedings, any further inquiry into the “merits” of these three cases is impossible, given that the Court has no access to the relevant administrative records.

Thus, the Court concludes that counsel may properly be appointed under 18 U.S.C. § 3006A(g) to represent petitioners in these habeas actions, provided the Court determines that (1) petitioners are financially unable to obtain representation and (2) the interests of justice so require. The affidavits submitted by petitioners indicate that petitioners Perez-Perez and Machado-Matos have no funds in any bank accounts or in their prison accounts. Although petitioner Crespo-Gomez’s affidavit does not state specifically whether he has any funds in any account, it does indicate that he is indigent and that he has received no income from any source within the past twelve months. Consequently, the Court has concluded that these three petitioners are financially unable to obtain representation.

Turning to the other requirement of 18 U.S.C. § 3006A(g), the court concludes that the interests of justice strongly dictate that counsel be appointed in these actions. Two overriding considerations guiding appointment of counsel in civil cases are whether counsel is needed to enable a litigant to present his case adequately and whether appointment of counsel would benefit the Court and the parties. See Knighton v. Watkins, 616 F.2d 795, 799 (5th Cir.1980). Even under ordinary circumstances, petitioners’ lack of command of the English language and their unfamiliarity with the American legal system would hinder the adequate presentation of their cases. The circumstances surrounding these cases, however, are exceptional. Because of the government’s concern for security, petitioners are denied access to their own administrative records, which provide the basis for the very decision that they are challenging. The complexity of the issues presented in this area of the law would tax even trained legal minds. Further, the lockdown at the Penitentiary appears to bar petitioners from access to law books and perhaps even to their own legal materials, further weakening their abilities to present their cases. The assistance of counsel in presenting petitioners’ cases would benefit not only petitioners themselves, but also the Court and even the government by eliminating the extraneous issues and developing the relevant ones.

Consequently, appointment of counsel here serves the “interests of justice.” The Court has considered whether appointment of pro bono counsel under 28 U.S.C. § 1915(d) might sufficiently promote these interests, but has concluded that it would not. One major stumbling block is that interpreters must be used for the attorneys to communicate with their clients. Under 18 U.S.C. § 3006A(g), but not under 28 U.S.C. § 1915(d), the attorneys may obtain payment for the services of these interpreters. If counsel are not appointed under section 3006A(g), they would face the Hobson’s choice of not communicating with their clients or of paying for interpreters out of their own pockets. Given this choice, many attorneys understandably might decline to volunteer their services.

A second major obstacle to appointment of counsel under 28 U.S.C. § 1915(d) instead of under 18 U.S.C. § 3006A(g) is that, for financial reasons, each attorney likely would be able to accept appointment in only one or two cases. Although a sufficient number of pro bono attorneys could be found to represent just these three petitioners, it would be difficult if not impossible to obtain a sufficient number of pro bono lawyers to handle the approximately 1000 similar cases now pending, not to mention any habeas actions filed by the other 800 detainees at the Atlanta Penitentiary who might be eligible to do so. Further, the use of fewer attorneys, each handling fifteen or twenty cases, would result in certain economies of scale because of the common legal issues in these actions. Finally, appointment under section 3006A(g), by limiting the number of different attorneys involved, would avoid the practical problems inherent in unleashing — all at once — 500 or more different lawyers on the Court system and on respondents.

The government would have the Court believe that appointment of counsel under 18 U.S.C. § 3006A(g) would drain the United States Treasury and would necessitate appointment of counsel at government expense for each of the more than 150,000 aliens detained annually. Setting aside for a moment considerations of justice, the modest payments authorized under 18 U.S.C. § 3006A are a pittance when compared with the cost of detaining each of the petitioners annually. Further, no alien would have a right to counsel at government expense. These appointments are an exercise of the discretion that Congress vested in federal courts to promote the “interests of justice” and of the flexibility that Congress wove into 18 U.S.C. 3006A(g) to meet the unforeseeable demands of unusual cases, such as those arising from the Mariel boatlift.

In sum, the Court concludes that the appointment and compensation of counsel for these petitioners under 18 U.S.C. § 3006A(g) is proper. A different result would eviscerate petitioners’ statutory right to seek habeas corpus relief — the only “remedial scheme” available to excludable aliens under Title 8, and one which Congress so “carefully preserved” for them in the 1961 amendment to Title 8. See 8 U.S.C. § 1105a(b); H.R.Rep. No. 1086, reprinted in 1967 U.S. Code Cong. & Ad.News 2972; see also Brown v. General Services Administration, 425 U.S. at 833, 96 S.Ct. at 1968 (“It would require the suspension of disbelief to ascribe to Congress the design to allow its careful and thorough remedial scheme to be circumvented____”).

Next, the Court considers the government’s motion to certify this order for interlocutory appeal under 28 U.S.C. § 1292(b). First, it appears that this order appointing counsel is not appealable under sections 1291 or 1292(a) of Title 28. Second, the Court finds that the applicability of 18 U.S.C. § 3006A(g) to these actions is a “controlling question of law” because, without appointment of counsel under that provision, petitioners could not adequately present their cases. Third, in view of the absence of any authority addressing this question, the Court concludes that there is “substantial ground for difference of opinion.” Last, the Court finds that “an immediate appeal from the order may materially advance the ultimate termination of the litigation” because, as discussed above, without the assistance of counsel appointed and compensated under 18 U.S.C. § 3006A(g), petitioners would be more likely to lose at the summary judgment stage of this litigation for failing to develop the facts essential to prevail.

Accordingly, the Court GRANTS petitioners’ motions for appointment of counsel and, pursuant to 18 U.S.C. § 3006A(g), APPOINTS counsel in each case as follows:

C85-221A William C. Thompson
C85-834A Jay Solomon
C85-1338A David Webster

In addition, the Court GRANTS the government’s motion to certify this order for interlocutory appeal under 28 U.S.C. § 1292(b), for resolution of the following “controlling question of law”:

Whether counsel may be appointed and compensated pursuant to 18 U.S.C. § 3006A(g) in a habeas corpus action brought by an excludable alien challenging the Attorney General’s refusal to parole him.

Finally, the Court GRANTS respondents’ motion for a stay pending appeal in these three actions.

      . Each of these detainees filled out "form” petitions in Spanish that were translated into English by certified court interpreters.

      . The Court relied on subsection (g) of 18 U.S.C. § 3006A — the Criminal Justice Act of 1964 (CJA) —which authorizes discretionary appointment of counsel. It provides as follows:
      (g) Discretionary appointment.
      Any person subject to revocation of parole, in custody as a material witness, or seeking relief under section 2241, 2254, or 2255 of title 28 or section 4245 of title 18 may be furnished representation pursuant to the plan whenever the United States magistrate or the court determines that the interests of justice so require and such person is financially unable to obtain representation. Payment for such representation may be as provided in subsections (d) and (e).

      . The government has informed the Court that, for security reasons, Cuban detainees at the Atlanta Penitentiary are not allowed to review their complete administrative records.

      . 28 U.S.C. § 1915(d) provides for the appointment of pro bono counsel. Although this order primarily addresses appointment of counsel under 18 U.S.C. § 3006A(g), section 1915(d) is briefly discussed below.

      . Each petition cites three bases of jurisdiction: 28 U.S.C. § 2241(c), 28 U.S.C. § 1331, and 8 U.S.C. § 1329.

      . Section 1329 of 8 U.S.C., also referred to as section 279 of the Immigration and Nationality Act of 1952 (INA), is set forth below:
      § 1329. Jurisdiction of district courts The district courts of the United States shall have jurisdiction of all causes, civil and criminal, arising under any of the provisions of this subchapter. It shall be the duty of the United States attorney of the proper district to prosecute every such suit when brought by the United States. Notwithstanding any other law, such prosecutions or suits may be instituted at any place in the United States at which the violation may occur or at which the person charged with a violation under section 275 or 276 [8 U.S.C. §§ 1325, 1326] may be apprehended. No suit or proceeding for a violation of any of the provisions of this title shall be settled, compromised, or discontinued without the consent of the court in which it is pending and any such settlement, compromise, or discontinuance shall be entered of record with the reasons therefor.
      "This subchapter” refers to Title II of the Immigration and Nationality Act of 1952, 8 U.S.C. §§ 1151-1362.

      . That section provides as follows:
      § 1362. Right to Counsel
      In any exclusion or deportation proceedings before a special inquiry officer and in any appeal proceedings before the Attorney General from any such exclusion or deportation proceedings, the person shall have the privilege of being represented (at no expense to the government) by such counsel, authorized to practice in such proceedings, as he shall choose.

      . In fact, a case relied on by the government in constructing its argument, Daneshvar v. Chauvin, 644 F.2d 1248 (8th Cir.1981), reaffirms the role of habeas corpus in judicial review of immigration matters, albeit in the context of an alien detained pursuant to an order of deportation, rather than exclusion. In Daneshvar the court upheld habeas corpus review of the Attorney General’s "denial of discretionary relief where deportability itself is not in issue." Id. at 1251.

      . The court in Garcia reiterated this holding in its denial of rehearing: "However unlikely it is that [petitioner's argument is correct, he is entitled to raise it. The district court has subject matter jurisdiction over the argument and should resolve it.” 680 F.2d at 1328 (holding that 8 U.S.C. § 1323(d)’s limitations on the substantive rights of stowaways did not deprive the court of subject matter jurisdiction to conduct habeas review.)
      Other courts have also rejected attempts to confuse jurisdictional questions with questions concerning the merits of a petitioner’s request for relief. See, e.g., Yiu Sing Chun v. Sava, 550 F.Supp. 90, 93 (E.D.N.Y.1982), rev’d on other grounds, 708 F.2d 869 (2d Cir.1983); Vigile v. Sava, 535 F.Supp. 1002, 1005-06 (S.D.N.Y.), rev’d on other grounds sub nom. Bertrand v. Sava, 684 F.2d 204 (2d Cir.1982); see also Fogel v. Chestnutt, 668 F.2d 100, 105-07 (2d Cir.1981), cert. denied, 459 U.S. 828, 103 S.Ct. 65, 74 L.Ed.2d 66 (1982) (discussing the tendency to confuse jurisdictional and pleading requirements).

      . This absence of any procedural means (other than habeas corpus) to obtain the judicial review authorized by section 1329 also undercuts the government’s reliance on Brown v. General Services Administration, 425 U.S. 820, 834, 96 S.Ct. 1961, 1968, 48 L.Ed.2d 402 (1976), and Block v. North Dakota ex rel. Board of University and School Lands, 461 U.S. 273, 280-85, 103 S.Ct. 1811, 1816-19, 75 L.Ed.2d 840 (1983). Block quoted the following statement from Brown: "It would require the suspension of disbelief to ascribe to Congress the design to allow its careful and thorough remedial scheme to be circumvented through artful pleading.” Brown, 425 U.S. at 833, 96 S.Ct. at 1968 (emphasis added). In the instant case, habeas corpus is the only "remedial scheme” intended by Congress to provide for judicial review of such decisions.

      . Noting that leading commentators have described Chen Chaun-Fa as a "dubious holding that review of asylum claim denial [is] not authorized by Sec. [1239],” 2 C. Gordon & H. Rosenfield, supra, § 8.8 n. 18, the Court expresses no approval of its holding. The Court only points out that, even under that case’s restrictive reading of section 1329, jurisdiction in the instant case would be proper under both section 1329 and 28 U.S.C. § 2241.

      . That portion of the House report provides as follows:
      Section 1(a)(3) requires that each plan provide for the appointment of counsel, pursuant to the provisions of section 1(g), for individuals financially unable to secure adequate representation who are subject to revocation of parole, who are material witnesses in custody, or who are seeking collateral relief. Inasmuch as these proceedings have traditionally been regarded as technically civil in nature rather than criminal, no right to appointed counsel has as yet been recognized under the sixth amendment. The distinction between civil and criminal matters, however, has become increasingly obscure where deprivation of personal liberty is involved. See In re Gault, 87 S.Ct. 1428, 387 U.S. 1, 18 L.Ed.2d 527 (1967), and Johnson v. Avery, 89 S.Ct. 747, 393 U.S. 483, 21 L.Ed.2d 718 (1969). The proceedings listed in subsection 1(a)(3) and (l)(g) are intimately related to the criminal process. Counsel has often been appointed to represent persons in such proceedings, but compensation has not been available under the 1964 act. The committee believes that compensation should be available under the act whenever a judge determines that counsel must be appointed to safeguard the interests of justice.
      H.R.Rep. No. 91-1546, reprinted in 1970 U.S. Code Cong. & Ad.News 3982, 3987-88.

      . The Court rejects the government’s further contention that the Court should have dismissed these cases without issuance of a show-cause order. It cannot be determined from these petitions whether petitioners are entitled to the relief sought. See 28 U.S.C. § 2243. That question requires inquiry into matters outside the pleadings, particularly the petitioners’ administrative records.

      . In fact, in conferences with the Court, counsel for the government have insisted that protective orders will be necessary to prevent appointed counsel from disclosing to the detainees themselves certain items in their administrative records that might supply the reasons for their detention. Denial of counsel in these instances would prevent those detainees from discovering — and thus being able to challenge — the specific grounds for their confinement.

      . The Court has considered whether volunteer, uncertified interpreters would suffice, but has concluded that they would not. In the course of handling cases involving Mariel Cubans, the Court has learned that these detainees speak in language not always understandable by someone with only a knowledge of ordinary Spanish. The Court recalls one detainee who was characterized as a child molester because of a translation error, when in fact his only crime was indoctrinating his children against communism. Thus, the Court has concluded that only specially trained, certified court interpreters can adequately perform this task.

      . The Court also has been informed that the budget for CJA payments for fiscal year 1986 contains sufficient funds to cover payments for appointed counsel, interpreters, and other costs in the large number of Cuban habeas actions.

      . Moreover, because of the novelty of this issue, appointed counsel should not be forced to litigate these actions until final judgment while faced with the possibility that they ultimately would have to disgorge any payments received under the CJA.


source: Caselaw Access Project

author: LEISURE, District Judge:

license: Public Domain

text:
    GROUP HEALTH INCORPORATED, Plaintiff, v. BLUE CROSS ASSOCIATION and Blue Cross/Blue Shield of Greater New York, Defendants, and United States Department of Health and Human Services, Intervenor-Defendant.
    No. 83 Civ. 7567 (PKL).
    United States District Court, S.D. New York.
    Aug. 16, 1985.

      DeForest & Duer, New York City, for plaintiff; John M. O’Connor and Mark Weldon, of counsel.
    Breed, Abbott & Morgan, New York City, for defendants; Robert A. Bicks and Alan C. Drewsen, of counsel.
    Rudolph W. Giuliani, U.S. Atty., S.D. N.Y., New York City, for intervenor-defendant; Susan E. Harkins, Asst. U.S. Atty., and James E. Healey, Asst. Reg. Atty., Dept, of Health and Human Services, of counsel.
   OPINION

LEISURE, District Judge:

Plaintiff, Group Health Incorporated (“GHI”), seeks damages from defendants Blue Cross/Blue Shield of Greater New York (“Blue Cross”) and Blue Cross and Blue Shield Association (the “Association”) (collectively referred to as “Defendants”). GHI alleges harm suffered from disallowance of Medicare and Blue Cross reimbursement for certain costs allegedly incurred by Hillcrest General Hospital (“Hill-crest”) in 1974-1980, the years GHI owned Hillcrest. GHI has asserted claims for negligence, misrepresentation and breach of warranty of authority against defendants Blue Cross and the Association. Blue Cross is sued in two capacities: as a private insurer, and as the fiscal intermediary for the federal government under the Medicare program. The Association is sued in its capacity as principal of Blue Cross acting as a fiscal intermediary.

Defendants have moved for an order granting them summary judgment pursuant to Fed.R.Civ.P. 56, on GHI’s first through fifth claims, and an order dismissing the sixth through eighth claims, pursuant to Fed.R.Civ.P. 12(h)(3), on the basis that this Court lacks subject matter jurisdiction because GHI has failed to exhaust administrative remedies. For the reasons stated below, Defendants’ summary judgment motion is denied and the Rule 12(h)(3) motion to dismiss is granted.

FACTUAL BACKGROUND

The sequence of events and many of the facts giving rise to the instant action have been described in two opinions previously rendered by judges of this Court. Group Health Inc. v. Schweiker, No. 80 Civ. 6163 (S.D.N.Y. Mar. 22, 1982); Group Health Inc. v. Blue Cross Ass’n, 587 F.Supp. 887 (S.D.N.Y.1984). Familiarity with these decisions is assumed. In the first opinion, Judge Carter affirmed the decision of the Provider Reimbursement Review Board (“PRRB”) of the United States Department of Health and Human Services (“HHS”). The PRRB affirmed Blue Cross’ decision to disallow reimbursement of certain interest expenses claimed by Hillcrest. The Court of Appeals, by an unpublished opinion, affirmed Judge Carter’s decision. The Supreme Court denied GHI’s petition for a writ of certiorari.

Thereafter GHI commenced this action in New York State Supreme Court. The complaint alleges that GHI is a not-for-profit corporation organized and existing under Article IX-C of the New York Insurance Law. That status subjects GHI’s activities to regulation by New York’s Superintendent of Insurance. When GHI proposed to expend subscriber funds to acquire Hill-crest, it was required to obtain prior Insurance Department approval. Such approval was granted conditionally upon whether a return on those funds would be included in the calculation of third-party reimbursement rates applicable to Hillcrest. Before GHI purchased Hillcrest in February 1974, the complaint alleges, GHI requested advice of Blue Cross as to whether a rate of return on the funds GHI used to purchase Hillcrest could be included in the calculation of Hillcrest’s Medicare and Blue Cross reimbursement rates.

Blue Cross is also an Article IX-C corporation. Before it could amend its reimbursement formula to permit it to reimburse for a return on equity invested in a hospital by an Article IX-C corporation, it had to receive approval from the New York Insurance Department. Blue Cross, in a letter dated June 11, 1974, from Lawrence P. Cafasso, Director of Blue Cross Provider Reimbursement Division, informed GHI that a return of nine percent on the funds used to purchase Hillcrest would be included when calculating Hillcrest’s Medicare and Blue Cross reimbursement rates. In 1979, at the insistence of HHS, Blue Cross disallowed the return for Medicare and Blue Cross reimbursement purposes and subsequently recouped from GHI any amounts previously paid to it that were attributable to the return on the invested funds.

GHI commenced this action in New York State Supreme Court. GHI’s first claim alleges that Defendants were negligent in failing to consult HHS before rendering such advice to GHI. The second claim alleges that Blue Cross negligently and falsely represented that it had the authority to make such a determination. The third claim alleges that Blue Cross warranted it was authorized to act as the agent for HHS in determining whether the return would be reimbursable under the Medicare program. The fourth and fifth claims seek to hold the Association liable for the acts and omissions of its agent and sub-contractor Blue Cross and for failing in its duty to properly supervise Blue Cross’ activities. The sixth through eighth claims allege that Blue Cross breached its agreement with GHI by refusing to include the rate of return in the calculation of the Blue Cross reimbursement rate and that Blue Cross is estopped from changing its position in that regard.

Defendants removed the action to federal court and Judge Sweet denied GHI’s motion to remand. Judge Sweet ruled that Blue Cross’ actions were taken under color of governmental authority in that Blue Cross was acting as a fiscal intermediary on behalf of HHS and therefore the matter must be resolved in federal court. Group Health Inc. v. Blue Cross Ass’n, 587 F.Supp. at 891. In the same opinion Judge Sweet granted the motion of HHS to intervene under Fed.R.Civ.P. 24(b)(2) and to consolidate GHI’s separate action against HHS.

GHI has pursued administrative review of its Blue Cross rates and the New York Department of Health has been conducting hearings on the matter.

MOTION FOR SUMMARY JUDGMENT

Defendants argue first that, as a matter of law, GHI was not entitled to rely on Blue Cross’ advice concerning the calculation of the Medicare reimbursement rate, citing Heckler v. Community Health Services of Crawford County, Inc., 467 U.S. 51, 104 S.Ct. 2218, 81 L.Ed.2d 42 (1984) (hereinafter Community Health Services). Second, GHI purchased Hillcrest before Blue Cross ruled in the Cafasso letter that Medicare reimbursement for the return on equity would be permitted. Consequently, no reliance on the alleged negligent misrepresentation was possible when GHI purchased Hillcrest. Third, Defendants argue, in the event GHI had relied justifiably on any representation of Blue Cross, GHI’s claims against Defendants are barred under the principles of sovereign immunity. Defendants are sued in their capacity as fiscal intermediaries acting on behalf of HHS, and according to the Medicare regulations, HHS is the real party in interest. Fourth, HHS submitted a memorandum of law in support of Defendants’ summary judgment in which it argues that Defendants are protected by the doctrine of official immunity.

Under the plain language of Rule 56(c), a court may grant a motion for summary judgment only if the moving party successfully demonstrates that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. See, e.g., Adickes v. S.H. Kress & Co., 398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970); Patrick v. LeFevre, 745 F.2d 153, 158 (2d Cir.1984); PPX Enterprises, Inc. v. Audiofidelity, Inc., 746 F.2d 120, 123 (2d Cir.1984) (uncertainty about any material fact defeats the motion). Ambiguities must be viewed in the light most favorable to the party opposing summary judgment. Project Release v. Prevost, 722 F.2d 960, 968 (2d Cir.1983). The burden of demonstrating the absence of any material fact genuinely in dispute rests on the moving party. Adickes, 398 U.S. at 157, 90 S.Ct. at 1608; Heyman v. Commerce & Industry Insurance Co., 524 F.2d 1317, 1320 (2d Cir.1975). Because summary judgment is a “drastic device” it should be exercised with caution where, as here, one party has yet to complete pretrial discovery. See, e.g., Gary Plastic Packaging Corp. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 756 F.2d 230, 236 (2d Cir.1985); National Life Insurance Co. v. Solomon, 529 F.2d 59, 61 (2d Cir.1975). Summary judgment, however, will not be denied merely because of conclusory allegations or denials by the opposing party. JSP Agency, Inc. v. American Sugar Refining Co. of New York, 752 F.2d 56, 59 (2d Cir.1985); SEC v. Research Automation Corp., 585 F.2d 31, 33 (2d Cir.1978).

Was GHI Entitled To Rely On Blue Cross’ Representations?

As summarized above, defendants argue that under the authority of Community Health Services, supra, a health care provider participating in Medicare is not entitled to rely upon the policy judgment of a mere conduit acting on behalf of the Secretary of HHS (hereinafter also collectively referred to as “HHS”). Under 42 U.S.C. § 1395h(a) a fiscal intermediary is required to provide consultative services to providers to enable them to establish and maintain fiscal records, to serve as a conduit for any information or instructions furnished to it by HHS and to serve as a channel of communication from providers to HHS.

The Supreme Court in Community Health Services stated that a health care provider has a duty to familiarize itself with the legal requirements for cost reimbursement and the nature of and limitations on the role of a fiscal intermediary. A fiscal intermediary, according to the relevant statutes and regulations and the reimbursement manual, acts merely as a conduit and may not resolve policy questions. 104 S.Ct. at 2226. The Court found that the health care provider in Community Health Services was satisfied with the policy judgment of a mere conduit and “made no attempt to have the question resolved by [HHS].” Id. Consequently, the fiscal intermediary’s advice was not given under circumstances conducive to reliance giving rise to estoppel against HHS. The reasonableness of the reliance was further undermined by the oral nature of the intermediary’s advice. In the context of a complex program such as Medicare, in which the need for written records is manifest, reliance upon oral advice is unreasonable. Id.

The instant action is distinguishable from Community Health Services on several grounds. First, the issue there was whether the government could be estopped from recovering funds expended by a health care provider in reliance on an incorrect interpretation of the Medicare regulations given by a responsible government agent. Id. at 2220. As the Supreme Court stated, “the Government may not be estopped on the same terms as any other litigant.” Id. at 2224. The instant issue is whether a health care provider can hold a fiscal intermediary liable for the intermediary’s own negligence. See, e.g., Rochester Methodist Hospital v. Travelers Ins. Co., 728 F.2d 1006 (8th Cir.1984); Hospital San Jorge, Inc. v. Blue Cross Ass’n, Medicare & Medicaid Guide (CCH) ¶ 28,306 (D.P.R.1976). No attempt is being made here to estop HHS from recoupment of expenditures erroneously made. Indeed, GHI litigated that issue with HHS and lost.

Second, GHI received a written statement from Blue Cross that the return would constitute a reimbursable cost for purposes of Medicare. The fact that the letter was tendered subsequent to the February acquisition does not render speculative GHI’s reliance on the Cafasso letter. GHI alleges that it could have restructured the financing or sold Hillcrest if it was informed in June 1974 that the rate of return on the funds used to purchase Hill-crest was not a reimbursable cost.

GHI’s argument in this regard is factually supported by a letter from Lawrence O. Monin, First Deputy Superintendent, State of New York Insurance Department, addressed to Dr. George Melcher, President of GHI, dated February 15, 1974. In that letter Monin qualified the Insurance Department’s approval of GHI’s application to acquire Hillcrest on two conditions. First, that the proposed amendment to the Blue Cross Reimbursement Formula had to be certified by the Commissioner of Health and approved by the Superintendent of Insurance. Second, if, as actually occurred, such approvals were not forthcoming, GHI had to obtain a non-recourse mortgage in the minimum amount of $2,000,000 within “ninety days after acquisition of the hospital.” (Emphasis added). In other words, if Hillcrest were not permitted to include in its prospective Blue Cross reimbursement rates the return on equity, GHI would have ninety days after the acquisition to restructure the financing. This certainly raises a reasonable inference that GHI could have restructured the financing again or even sold Hillcrest if Blue Cross had determined in June, 1974 that the rate of return was not a reimbursable cost for Medicare purposes.

Nevertheless, Defendants argue that all communications between the parties before the Cafasso letter related to Blue Cross reimbursement rates only. They claim that the Cafasso letter was the first time the topic of Medicare reimbursement rates was discussed. However, a letter dated March 26, 1974, from William F. McCann, Assistant Commissioner of the New York State Department of Health, to James C. Ingram, Division Vice President, Provider Reimbursement of Blue Cross, states that “in establishing reimbursement rates for the hospital purchased by GHI, it is anticipated that the major third party payors will include their proportionate shares of interest paid to GHI subject to any specific third party formula limitations as to reasonableness and amount.” Consequently, several months before sending the Cafasso letter, Blue Cross was aware that the reimbursement arrangement for which it was seeking approval would have to be acceptable to other third party payors, such as Medicare. Based upon this letter, it is certainly not beyond argument at this stage of the litigation that there was communication between GHI and Blue Cross concerning how the financing structure would be interpreted under the Medicare regulations.

The third ground on which Community Health Services may be distinguished concerns the issue of whether it was reasonable for GHI to rely on the advice of Blue Cross even though Blue Cross was only a conduit for communications between GHI and HHS. “It is undisputed that correct administrative practice required [Blue Cross] to refer [GHI’s] inquiry to [HHS] for a definitive answer.” Community Health Services, 104 S.Ct. at 2222. Unlike Community Health Services, where neither the provider nor the intermediary sought further advice when the question of interpretation initially arose, both parties in the instant case sought rulings from the New York State Departments of Insurance and Health concerning the contemplated arrangement. Such initial inquiry was logical, given the restrictions imposed by state law. regarding the use of subscribers’ funds. Such efforts raise a question of fact whether it was reasonable for GHI to believe that Blue Cross had likewise referred the question to HHS, especially in light of the written advice rendered by Blue Cross. “Written advice, like a written judicial opinion, requires its author to reflect about the nature of the advice that is given ..., and subjects that advice to the possibility of review, criticism and reexamination.” Id. at 2227. In this regard, Blue Cross did not consult with HHS as to whether the arrangement would pass scrutiny under Medicare’s related party regulations because “the whole transaction had been thoroughly reviewed and approved by two different agencies of the state government.” Testimony of James C. Ingram, PRRB Hearing, June 10, 1980, at 0216-17. This issue is significant because 42 U.S.C. § 1395h(a)(2)(A) expressly states that intermediaries are to “serve as a channel of communication from providers to the Secretary.”

The cumulative effect of these facts and circumstances is to distinguish the instant case from Community Health Services and raise material issues of fact. GHI is not seeking to estop HHS from recovering money erroneously paid out. Blue Cross rendered written advice to GHI that the arrangement was acceptable under Medicare’s regulations. Finally, GHI may have arranged for alternate financing had Blue Cross indicated in June, 1974 that Medicare would not reimburse Hillcrest for the return on its investment.

Sovereign Immunity

Next, defendants argue that because fiscal intermediaries act on behalf of HHS in performing their contractual undertakings, HHS is the real party in interest in this lawsuit. 42 C.F.R. § 421.5(b) (1984). The fiscal intermediary, Blue Cross, therefore, is wrapped in the protective mantle of the government’s sovereign immunity, barring GHI’s suit. The cases that Defendants have cited in support of this position provide little guidance in this action, however, because, as stated by the court in Rochester Methodist Hospital v. Travelers Ins. Co., 728 F.2d 1006 (8th Cir.1984), “in none of these cases was there proof that the intermediary acted beyond the scope of its authority.” 728 F.2d at 1015. See also, Hospital San Jorge, Inc. v. Blue Cross Ass’n, Medicare & Medicaid Guide (CCH) 11 28,306, at 9074-75 (D.P.R.1976). Also, in each of the cases cited by Defendants, the fiscal intermediary disallowed a claim for reimbursement. None involved advice rendered prospectively before a claim for reimbursement was made as Blue Cross did in the instant action.

Plaintiff alleges that Defendants engaged in tortious activity and acted beyond the scope of their authority. According to the Supreme Court, a fiscal intermediary has neither actual nor apparent authority to render an interpretation of the Medicare regulations. Community Health Services, 104 S.Ct. at 2226 n. 21. Where the law limits a government agent’s powers “his actions beyond those limitations are considered individual and not sovereign actions.” Larson v. Domestic & Foreign Corp., 337 U.S. 682, 689, 69 S.Ct. 1457, 1461, 93 L.Ed. 1628 (1949). Consequently, a material question of fact exists as to whether Blue Cross was acting within the scope of its authority in giving the advice to GHI. Slotkin v. Citizens Casualty Co. of New York, 614 F.2d 301, 317 (2d Cir.), cert. denied, 449 U.S. 981, 101 S.Ct. 395, 66 L.Ed.2d 243 (1980).

The papers presented to the Court on this motion indicate there is merit to GHI’s allegations in this regard. During the time that GHI acquired Hillcrest, Blue Cross itself was interested in buying hospitals with subscribers’ funds. See Testimony of James C. Ingram, PRRB hearing, June 10, 1980, at 0210-11, 0222, 0272. An August 30, 1978 report prepared by the Medicare Office of Program Integrity commented on the actions of Blue Cross as follows:

The parties involved in making the decision [Blue Cross and the New York State Departments of Health and Insurance] appeared to over extend their authority and in fact may have acted improperly in this situation.
* * * * * *
By ruling on a complex Medicare reimbursement situation without consulting the Medicare Bureau, Blue Cross may have put its intermediary role second to its own private plan’s best interest. This is evidenced by the fact that at the time of the Hillcrest purchase, Blue Cross was interested in purchasing hospitals itself. Blue Cross may have taken an active role and even bent its interpretations of the reimbursement regulations to suit a situation that would act as a catalyst for a reimbursement ruling it could benefit from in the future.

Judge Carter referred to this possible conflict of interest when he denied GHI’s application to overturn the decision of the PRRB, stating that “the intermediary advise[d] the provider in large part from the perspective of a competitor seeking ways to achieve the agreed upon result for itself....” Group Health Inc. v. Schweiker, No. 80 Civ. 6163, slip op. at 11 (S.D.N.Y. Mar. 22, 1982).

Where there are specific allegations that Blue Cross did not act on direct instructions from HHS but rather acted beyond the scope of its authority, summary judgment on the sovereign immunity claim is inappropriate. The effect of such allegations in the context of such a motion was recognized and aptly described by Judge Haight in Arzt v. Blue Cross & Blue Shield of Greater New York, No. 78 Civ. 5723 (S.D.N.Y. Oct. 29, 1982) when he granted summary judgment to Blue Cross on a claim that Blue Cross participated in a conspiracy to force a health care provider out of business. Judge Haight stated:

[T]he only reasonable conclusion that can be drawn is that Blue Cross, as fiscal intermediary, is being sued for actions it took because of its statutory powers as a fiscal intermediary, and not because of any alleged negligence in failing to exercise properly those duties. The acts upon which Blue Cross’s liability is predicated are the withholding of Medicare payments____

Id., slip op. at 28 (emphasis added).

Notwithstanding the allegations that Blue Cross acted beyond the scope of its authority, Defendants and HHS argue that sovereign immunity applies in any event because an indemnity agreement would require any judgment against Defendants to be paid ultimately by HHS. This argument is based upon the principle that a lawsuit is against the government regardless of who is named as a defendant if the relief sought would be paid from the public treasury. See, e.g., Stafford v. Briggs, 444 U.S. 527, 542 n. 10, 100 S.Ct. 774, 784 n. 10, 63 L.Ed.2d 1 (1980); Dugan v. Rank, 372 U.S. 609, 620, 83 S.Ct. 999, 1006, 10 L.Ed.2d 15 (1963); Falls Riverway Realty, Inc. v. City of Niagara Falls, 754 F.2d 49, 55-56 (2d Cir.1985).

Pursuant to 42 C.F.R. § 421.5(b), HHS has agreed to indemnify Defendants and pay any judgments, except those rendered for criminal conduct, fraud or gross negligence against the Association or Blue Cross resulting from the performance of their contractual obligations. Thus, if Defendants are found liable in this action, HHS will ultimately pay. According to the principle set forth above, this would trigger the government’s sovereign immunity.

While this argument has some facial appeal, it has been rejected by courts because an indemnity agreement between the government and its agents does not affect the rights of third parties. Rochester Methodist Hospital, 728 F.2d at 1012-14 (citing Brady v. Roosevelt Steamship Co., 317 U.S. 575, 583, 63 S.Ct. 425, 429, 87 L.Ed. 471 (1943) (“The rights of principal and agent inter se are not the measure of the rights of third persons against either of them for their torts.”)). “A government may not manufacture immunity for its employees [and contractors] by agreeing to indemnify them.” Spruytte v. Walters, 753 F.2d 498, 512 n. 6 (6th Cir.1985). Accord Demery v. Kupperman, 735 F.2d 1139, 1146-47 (9th Cir.1984), cert. denied, — U.S.-, 105 S.Ct. 810, 83 L.Ed.2d 803 (1985); Downing v. Williams, 624 F.2d 612, 626 (5th Cir.1980), vacated on other grounds, 645 F.2d 1226 (5th Cir.1981); Foster v. Day & Zimmermann, Inc., 502 F.2d 867, 875 (8th Cir.1974); Whitaker v. Harvell-Kilgore Corp., 418 F.2d 1010, 1014 (5th Cir.1969). Cf. L. Tribe, American Constitutional Law § 3-35, at 132-33 n. 22 (1978). The very existence of an indemnity agreement undercuts the argument that as a consequence intermediaries are protected by sovereign immunity. “[I]f sovereign immunity was intended ... there would be no necessity of an indemnity agreement____” Whitaker, 418 F.2d at 1014.

Based upon the foregoing, GHI’s claims against Defendants are not barred by sovereign immunity.

Official Immunity

HHS argues in its memorandum of law in support of Defendants’ summary judgment motion that GHFs claims are barred under the doctrine of official immunity. The official immunity doctrine provides that federal officials are absolutely immune from liability for common-law torts allegedly committed in the performance of official duties that require the exercise of judgment or discretion. Barr v. Matteo, 360 U.S. 564, 79 S.Ct. 1335, 3 L.Ed.2d 1434 (1959). The purpose of this judicially created rule is to ensure that government officials are able to exercise their duties free from the fear of damage suits arising out of acts done in the course of those duties. Government officials would be free of the threat of lawsuits “which might appreciably inhibit the fearless, vigorous, and effective administration of policies of government.” Id. at 571, 79 S.Ct. at 1339.

Official immunity has been held to protect all executive officials regardless of rank, provided the official was acting within the outer limits of his authority and the act involved the exercise of judgment or discretion. Id. at 572-73, 79 S.Ct. at 1340.

The privilege is not a badge or emolument of exalted office, but an expression of a policy designed to aid in the effective functioning of government. The complexities and magnitude of governmental activity have become so great that there must of necessity be a delegation and redelegation of authority as to many functions, and we cannot say that these functions become less important simply because they are exercised by officers of lower rank in the executive hierarchy.

Id. (footnote omitted). The courts have applied the Supreme Court’s broad formulation of the doctrine to the extent that it has been held to apply to a nurse supervisor at a Veterans Administration hospital who was sued for writing an allegedly libelous incident report. Newkirk v. Allen, 552 F.Supp. 8 (S.D.N.Y.1982). This result was foretold by Justice Brennan in his dissenting opinion in Barr v. Matteo when he stated that the approach set forth in Justice Harlan’s plurality opinion would “clothe with immunity the most obscure subforeman on an arsenal production line who has been delegated authority to hire and fire and who maliciously defames one he discharges.” 360 U.S. at 587, 79 S.Ct. at 1348. See also Gray, Private Wrongs of Public Servants, 47 Cal.L.Rev. 303, 337 (1959) (hereinafter Private Wrongs).

Cases where claims of official immunity have been upheld involved defamation, false arrest or imprisonment, and malicious prosecution. See Norton v. McShane, 332 F.2d 855, 859-60 n. 5 (5th Cir.1964), cert. denied, 380 U.S. 981, 85 S.Ct. 1345, 14 L.Ed.2d 274 (1965); Private Wrongs, 47 Cal.L.Rev. at 337-38 n. 223. The doctrine has been held to apply when negligent misrepresentation has been alleged. See, e.g., Claus v. Gyorkey, 674 F.2d 427 (5th Cir.1982); Sowders v. Damron, 457 F.2d 1182 (10th Cir.1972). The application of the doctrine to persons performing work at so many levels of government and in such far ranging circumstances has led one commentator to suggest that the growth of the immunity rule is due to “its convenience as a form of judicial shorthand to dispose, at the pleading stage, cases which obviously have little merit.” Private Wrongs, 47 Cal.L.Rev. at 338. Cf. Annot., 9 A.L.R.3d 382, 387 (1966).

HHS argues that since Blue Cross and the Association were acting as agents of HHS in the role of Medicare fiscal intermediaries they should be deemed federal officials for purposes of immunity. Such private entities performing federal functions as agents of the government therefore should be protected. GHI, for its part, contends that it is incorrect to protect Blue Cross and the Association with official immunity.

According to the balancing test that is applied to determine whether extension of immunity is appropriate, the court must weigh the injustice that results from denying a plaintiff a remedy for its injury against the pressures that would be placed upon an individual serving as a federal official if that individual could be held liable for monetary damages for actions authorized by the government. Barr v. Matteo, 360 U.S. at 565, 570-71, 79 S.Ct. at 1336, 1338-39. GHI contends that the rationale behind the official immunity rule does not apply in this case. The Defendants are large private insurance corporations which contracted to perform services for the Department. Defending damage lawsuits arising out of their roles as fiscal intermediaries would not be any different than defending lawsuits in connection with their own hospital insurance programs. GHI argues that, since defending those suits does not divert time that would otherwise be devoted to government service, the same considerations necessarily apply to the defense of lawsuits arising out of the performance of duties in the Medicare program. Likewise, the cost of defending lawsuits are a cost of doing business and are figured into the prices charged and the amounts bid for contracts.

The case law indicates that it is appropriate to consider a private person a government official if the conduct at issue is instigated and directed by federal officers. Reuber v. United States, 750 F.2d 1039, 1063-64 (D.C.Cir.1984) (Bork, J., concurring). Cf. Falls Riverway Realty, 754 F.2d at 57 (city agency an agent “only if the United States supervised the day-to-day operations”). In Blum v. Campbell, 355 F.Supp. 1220 (D.Md.1972), a defamation action, the manager of an apartment complex under contract to the Federal Housing Administration was deemed entitled to official immunity. The contract with FHA provided that the day-to-day administrative details of operation would be under supervision of the local FHA office. The court found that the FHA closely supervised the company’s activities during the period involved and the company “did no more than carry out FHA instructions.” Id. at 1224. As a result, the defendants “were acting as agents under the direct supervision and control of the FHA and not as independent contractors.” Id.

In Becker v. Philco Corp., 372 F.2d 771 (4th Cir.), cert. denied, 389 U.S. 979, 88 S.Ct. 408, 19 L.Ed.2d 473 (1967), a defense contractor filed a report with the government which resulted in suspension of plaintiffs security clearances. The defense contract required the company to keep the government advised of suspected security risks. The court held that the communications were privileged under Barr v. Matteo because the contractual requirement transformed the company into an agent of the government. 372 F.2d at 774-75.

In McManus v. McCarthy, 586 F.Supp. 302 (S.D.N.Y.1984), a libel action, cadets at the Merchant Marine Academy were deemed to be performing a federal function under the control of federal officers because they acted under the direct supervision and control of the Academy’s superior officers, who are federal employees. Id. at 305. Likewise, in Logiurato v. Action, 490 F.Supp. 84 (D.D.C.1980), medical examiners who acted under Peace Corps direction and control were protected by official immunity-

In Bushman v. Seiler, 755 F.2d 653 (8th Cir.1985), the court extended official immunity to a consultant for a Medicare carrier sued for libel due to a report he filed at the carrier’s request as part of an audit investigation. The court recognized that Medicare intermediaries “can” be governmental agents for immunity purposes and that the defendant’s relationship to the Medicare program “may” shield him with official immunity. Id. at 655. The audit was conducted pursuant to 42 C.F.R. § 421.200(e) and the report was for internal use only. Although Seiler’s link to the federal government was indirect, the court held that “under the circumstances of this case, official status should be extended to Seiler as a consultant to a Medicare carrier.” Id.

Bushman would appear to provide support for the contentions of HHS. But important considerations not present in this case entered into the court’s decision. The court acted on “a recognition that public criticism of government operation should be encouraged.” Id. at 656. Unless such communications are privileged, government contractors who are aware of real or imaginary shortcomings in connection with government activity would be dissuaded from communicating their concerns to the proper authority. Id. Thus, in Bradley v. Computer Sciences Corp., 643 F.2d 1029 (4th Cir.), cert. denied, 454 U.S. 940, 102 S.Ct. 476, 70 L.Ed.2d 248 (1981), the court held that a letter written by a private corporation to the Defense Communications Agency about the conduct of one of the agency’s employees was deemed qualifiedly privileged under the petition clause of the First Amendment. Id. at 1033. Although the defendant was a government contractor, the court did not extend it official immunity, while it did extend such protection to the government defendants.

These cases demonstrate that a court must scrutinize the particular conduct at issue and weigh whether it is appropriate under the circumstances to protect the private party. In each case where a government contractor was involved such status was not significant in the outcome. Rather, the circumstances surrounding the particular conduct at issue were important to the determination that official immunity would apply.

Turning to the facts of this case, it is apparent that the defendants cannot be considered government officials. The conduct complained of was not undertaken at the instigation and direction of the government. To the contrary, Blue Cross acted wholly on its own, without direction or guidance from HHS. Although 42 C.F.R. § 421.5(b) provides that intermediaries act on behalf of HHS, that regulation does not elevate the intermediaries to the status of government officials so that they would be immune for their own tortious conduct. Cf. Rochester Methodist Hospital, 728 F.2d at 1014.

If the intermediaries were to be endowed with official immunity, Congress was capable of expressly providing for such status. The legislative history indicates that Congress deemed it appropriate to permit the government to indemnify the intermediaries under certain circumstances, but it no where provides that the intermediaries shall enjoy official or sovereign immunity. See S.Rep. No. 404, 89th Cong., 1st Sess., reprinted in 1965 U.S.Code Cong. & Ad. News 1943, 1995 (“the Government would be expected to safeguard the interests of his contractual representatives with respect to their actions in the fulfillment of commitments under the contracts and agreements entered into by them with the Secretary.”). Instead, Congress recognized that the intermediaries are independent contractors and are liable for their own torts and authorized the HHS to enter into indemnity agreements. It is significant that the agreements do not extend to judgments for criminal conduct, fraud or gross negligence resulting from the performance of the intermediaries’ obligations, while official immunity confers an absolute immunity without regard to whether the conduct is willful or malicious. See, e.g., Barr v. Matteo, 360 U.S. at 571, 79 S.Ct. at 1339 (quoting Gregoire v. Biddle, 177 F.2d 579, 581 (2d Cir.1949), cert. denied, 339 U.S. 949, 70 S.Ct. 803, 94 L.Ed. 1363 (1950)). And, as was discussed with reference to Defendants’ sovereign immunity claim, the existence of an indemnity agreement does not affect the rights of third parties.

Having determined that Defendants cannot be deemed government officials, it is unnecessary to decide whether Blue Cross was acting within the scope of its authority. Because a factual dispute exists with respect to this important issue it is likely that a decision on this issue would have to be deferred in any event, pending further factual development as to the exact scope of the authority of the fiscal intermediary. See, e.g., Expeditions Unlimited Aquatic Enterprises, Inc. v. Smithsonian Institution, 566 F.2d 289, 295 (D.C.Cir.1977), cert. denied, 438 U.S. 915, 98 S.Ct. 3144, 57 L.Ed.2d 1160 (1978); Kletschka v. Driver, 411 F.2d 436, 449 (2d Cir.1969) (“A plea of official immunity cannot be sustained until a court has knowledge of the exact nature of the defendants’ actions and the precise scope of their official duties.”); Liquori v. Alexander, 495 F.Supp. 641, 648 (S.D.N.Y. 1980) (existence of factual dispute as to scope of authority requires further factual development).

Liability of the Association

Defendants’ motion for summary judgment on GHI’s claim against the Association must be considered in the context of the facts, circumstances and legal principles discussed above with respect to Blue Cross. In addition, the Association may bear responsibility for the actions of Blue Cross in light of the Association’s policy which discouraged • Blue Cross from approaching HHS directly for rulings on reimbursement matters. Testimony of James C. Ingram, PRRB Hearing, June 10, 1980, at 0227.

Accordingly, Defendants’ motion for summary judgment on the first five claims is hereby denied.

RULE 12(h)(3) MOTION

Blue Cross seeks to dismiss, pursuant to Fed.R.Civ.P. 12(h)(3), GHI’s sixth through eighth claims, which allege breach of contract against Blue Cross in its capacity as a private insurer. The basis for this motion is GHI has not exhausted the administrative procedures set forth by state law for review of Blue Cross reimbursement rates. Rules and regulations promulgated by the New York Department of Health provide for appeals to the Commissioner of Health by an individual hospital which seeks to challenge a certified rate. 10 N.Y.C.R.R. § 86-1.17(c) (1983).

GHI has pursued administrative review of its Blue Cross rates according to the procedures set forth in the Blue Cross formula and the regulations. The Department of Health administrative law judge conducting hearings on the matter has set forth the following as the “issues to be determined”:

What were the precise terms of the agreement between the State (representing the Departments of Health and Insurance plus Blue Cross and Blue Shield) and Hillcrest/GHI? Assuming, as was admitted, the agreement was to treat the Hillcrest/GHI investment as a loan, what if any, indicia of a loan had to be carried out by Hillcrest/GHI to consummate the agreement? ... [T]he ultimate question is this: ____can the State, by agreement, pay Medicaid funds it would not ordinarily have to pay under the statutes, regulations and existing guidelines?

The factual issues being presented at the administrative level, as set forth above, are similar to those raised by GHI’s sixth through eighth claims.

The doctrine of exhaustion of administrative remedies is a “long settled rule of judicial administration that no one is entitled to judicial relief for a supposed or threatened injury until the prescribed administrative remedy has been exhausted.” Myers v. Bethlehem Shipbuilding Corp., 303 U.S. 41, 50-51, 58 S.Ct. 459, 463, 82 L.Ed. 638 (1938). A primary purpose for the rule is “the avoidance of premature interruption of the administrative process.” McKart v. United States, 395 U.S. 185, 193, 89 S.Ct. 1657, 1662, 23 L.Ed.2d 194 (1969). Other purposes include permitting the agency best suited and possessing the necessary expertise to determine the questions at issue, permitting such agency to develop the necessary factual background upon which decisions should be based and conserving judicial resources. Id. at 194-95, 89 S.Ct. at 1662-63. The rule, which has been considered a limit of the court’s subject matter jurisdiction, White v. Shull, 520 F.Supp. 11, 13 (S.D.N.Y.1981); Fairchild, Arabatzis & Smith, Inc. v. Sackheim, 451 F.Supp. 1181, 1184 (S.D.N.Y. 1978), has been applied to actions similar to this one begun by hospitals challenging decisions on reimbursement rates. Sunrest Nursing Home, Inc. v. Whalen, 99 A.D.2d 206, 473 N.Y.S.2d 34 (3d Dep’t 1984); Arnot-Ogden Memorial Hospital v. Blue Cross of Central New York, Inc., 92 A.D.2d 629, 459 N.Y.S.2d 950 (3d Dep’t 1983); Crouse-Irving Memorial Hospital v. Axelrod, 82 A.D.2d 83, 442 N.Y.S.2d 338 (4th Dep’t 1981).

Blue Cross argues that these interests would be served here if GHI exhausted its administrative rights before proceeding in court. First, there is an appeal of Blue Cross’ reimbursement decision pending before a Department of Health administrative judge, whose decision will be reviewed by the Commissioner of Health. Requiring exhaustion would avoid premature interruption of the administrative process. Second, the state agency will be able to develop the factual background upon which the ultimate decision will be based. Third, the state agency is best suited and possesses the necessary expertise to determine the questions raised by GHI’s appeal of Blue Cross’ decision. Fourth, the controversy may be resolved in the administrative process and judicial intervention would be unnecessary.

GHI acknowledges that these general principles apply herein, but argues that the issues underlying the three claims for relief against Blue Cross are essentially contractual. As such, the prescribed administrative remedies need not be utilized or exhausted. See, e.g., Mary Imogene Bassett Hospital v. Hospital Plan, Inc., 89 A.D.2d 240, 455 N.Y.S.2d 416 (4th Dep’t 1982). Resort to administrative remedies was not required in the Bassett Hospital case, however, because the defendant’s contract breach foreclosed the hospital’s right to pursue its administrative remedies. Id. at 244, 455 N.Y.S.2d at 419. See Arnot-Ogden Memorial Hospital, 92 A.D.2d at 630, 459 N.Y.S.2d at 952. No such situation is presented here.

Due to plaintiff’s failure to exhaust its administrative remedies, subject matter jurisdiction is lacking. Accordingly, GHI’s sixth through eighth claims are hereby dismissed pursuant to Rule 12(h)(3).

CONCLUSION

Defendants’ summary judgment motion to dismiss GHI’s first five claims is denied. Defendants’ motion to dismiss GHI’s sixth through eighth claims for lack of subject matter jurisdiction is granted.

SO ORDERED.

      . Discovery has been held in abeyance pending the Court’s decision on the instant motion.

      . 42 C.F.R. § 405.419(b) & (c) (1979).

      . Defendants further argue that GHI failed to adhere to the terms of the approved arrangement by not carrying the investment on its books as a mortgage-loan transaction and not enforcing its right to interest payments from Hillcrest. They claim this precludes GHI from holding Defendants responsible for GHI’s losses. Significant in this regard is the September 29, 1978 letter from Jacqueline G. Wilson, Regional Medicare Director, to Peter L. Hutchins, Senior Vice-President-Finance of Blue Cross. In this letter, Ms. Wilson states that the failure to pay interest was "merely additional evidence” that the arrangement was not arms-Iength, thereby making the return on investment a non-reimbursable cost. Ms. Wilson concluded that Medicare was "unable to understand how Blue Cross could have ruled that the 'loan’ transaction is a reimbursable cost.” In other words, it was the relationship between GHI and Hillcrest that disqualified the transaction, not the failure to pay interest.

      . This position appears to be a variation of the so-called government contractor defense to liability for injuries to another caused in the course of performing work on behalf of the government. See Yearsley v. W.A. Ross Const. Co., 309 U.S. 18, 60 S.Ct. 413, 84 L.Ed. 554 (1940). In Yearsley the Supreme Court stated that a government contractor can be held liable for conduct causing injury to another if it is found "that he exceeded his authority.” Id. at 21, 60 S.Ct. at 414. Accord Ove Gustavsson Contracting Co. v. Floete, 299 F.2d 655, 660 (2d Cir.1962), cert. denied, 374 U.S. 827, 83 S.Ct. 1862, 10 L.Ed.2d 1050 (1963). See generally In re “Agent Orange’’ Product Liability Litigation, 506 F.Supp. 762, 792-94 (E.D.N.Y.), rev’d on other grounds, 635 F.2d 987 (2d Cir.1980), cert. denied, 454 U.S. 1128, 102 S.Ct. 980, 71 L.Ed.2d 116 (1981).

      . Peterson v. Weinberger, 508 F.2d 45 (5th Cir.), cert. denied, 423 U.S. 830, 96 S.Ct. 50, 46 L.Ed.2d 47 (1975); Matranga v. Travelers Ins. Co., 563 F.2d 677 (5th Cir.1977); Pine View Gardens, Inc. v. Mutual of Omaha Ins. Co., 485 F.2d 1073, 1074-75 (D.C.Cir.1973); Arzt v. Blue Cross and Blue Shield of Greater New York, No. 78 Civ. 5723 (S.D.N.Y. Oct. 29, 1982); Vanderberg v. Carter, 523 F.Supp. 279 (N.D.Ga.1981), aff’d, 691 F.2d 510 (11th Cir.1982); Johnson v. Johnson, 332 F.Supp. 510, 511 (E.D.Pa.1971); Kuenstler v. Occidental Life Ins. Co., 292 F.Supp. 532, 537 (C.D.Cal.1968).

      . In Bushman the Eighth Circuit extended official immunity to the defendant rather than consider whether the defense of sovereign immunity applied. 755 F.2d at 655 n. 2 (citing Rochester Methodist Hospital, 728 F.2d at 1012-16),

      . Rule 12(h)(3) provides:
      Whenever it appears by suggestion of the parties or otherwise that the court lacks jurisdiction of the subject matter, the court shall dismiss the action.