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National Child Support, Inc. v. Hayes

March 9, 2007

NATIONAL CHILD SUPPORT, INC., PLAINTIFF,
v.
THOMAS HAYES, DIRECTOR, OHIO DEPARTMENT OF JOB AND FAMILY SERVICES, ET AL, DEFENDANTS.



The opinion of the court was delivered by: Judge Sandra S. Beckwith

ORDER

Before the Court are the parties' cross motions for summary judgment. Plaintiff's motion (Doc. 68) seeks summary judgment on its claims that Defendants breached and/or interfered with its contracts with certain Ohio county Child Support Enforcement Agencies. Defendants' motion (Doc. 67) seeks entry of judgment on all of Plaintiff's claims, and dismissal of the individual defendants based on their qualified immunity. (Doc. 67) The parties have each filed responses (Docs. 74 and 75) and replies (Docs. 77 and 78) to the respective motions.

The Court grants Defendants' motion.

FACTUAL BACKGROUND

National Child Support, Inc. ("NCS") is a private child support collection company. Beginning in approximately 1995, NCS entered into contracts with several Ohio county Child Support Enforcement Agencies, to perform investigation and collection services. Several of these contracts are attached to the Stafford Affidavit, Defendants' Exhibits 13 through 27 (Doc. 70). These contracts are on standard forms and specify the services NCS provides, for which NCS was generally paid on a percentage fee basis. Overall contract funding is described on the first page of the contracts as a combination of federal and nonfederal, or local, matching funds. All contracts are expressly limited to one-year terms, although counties are able to solicit and accept three-year proposals, requiring a new contract to be approved every year.

Federal financial support for state child support services is authorized by Title IV-D of the Social Security Act, and administered by the Department of Health and Human Services. Federal matching funds are provided to participating states at a current rate of 66% of the state's eligible costs. Ohio's participation in the federal cost-sharing program is administered by the Office of Child Support within the Ohio Department of Jobs and Family Services (formerly called the Ohio Department of Human Services). Broadly speaking, county CSEAs submit their cost data to the state Child Support Office, who approves county expenditures and contracts for federal cost sharing, termed "federal financial participation" or FFP, in the applicable regulations and contract forms.

In the latter part of the 1990's, apparently in anticipation of possible funding decreases, NCS proposed a "volume discount" contract to some of the CSEAs. This is illustrated in a letter NCS wrote to the Sandusky County CSEA on February 26, 2001. The letter was responding to the County's announced intent not to renew its NCS contract because of anticipated funding shortfalls. This contract, as with the other NCS contracts from the late 1990's, required 34% of contract funding (the local share) to be paid by the county. The letter describes NCS' new proposal: "That is why many of our clients hire NCS under our volume discount plan, where NCS waives CSEA's 34% county non-FFP portion by contractual agreement." (See Doc. 70, Def. Exhibit 1.)

It is undisputed that ODJFS had approved several NCS contracts containing this "volume discount" fee arrangement. These include a Butler County contract for the period January 1, 2001 to December 31, 2001. (Doc. 71, Exhibit 36.) The ODJFS approval letter of February 16, 2001 states that the contract is substantially in compliance with applicable regulations, and is approved for federal financial participation. (Doc. 70, Exhibit 8.)

Joseph Pilat became the Deputy Director of the ODJFS Office of Child Support in November 2001. Prior to joining ODJFS in May 2001, Mr. Pilat was director of the Franklin County CSEA for approximately ten years. On December 4, 2001, Mr. Pilat sent a memo to all county CSEA directors. Pilat states that his memo is written in response to questions from county CSEAs about the NCS "volume discount" contract, and ". . . a private contractor's ability to contribute the local share (34%) of contract costs when contracting with a CSEA. The question is, in other words, whether a CSEA can agree to reimburse a contractor only the Federal share (66%) of contract costs." (Doc. 70, Pilat Affidavit and Def. Exhibit 28.)

Pilat concluded that this contractual arrangement does not qualify for federal financial participation, citing 45 CFR §304.30 and pertinent sections of the Ohio Administrative Code then in effect. These provisions, according to the memo, require counties to contribute the local share of Title IV-D expenditures from public funds, not from private funds. Pilat announced that ODJFS would not approve any future CSEA requests for federal financial participation for contracts under which the vendor provides the local share, or accepts the federal participation share (66%) as full payment of contract costs.

This announcement led to predictable results. Butler County CSEA's contract with NCS beginning in January 2000 had a total ceiling cost of $250,000, to be paid entirely with federal funds. That ceiling was raised to $500,000 by amendment in September 2000. And in January 2001, the contract was extended for another year at the $500,000 ceiling, also paid entirely with federal funds. (Def. Exhibit 36) Each of these contracts was approved by the Butler County Commissioners, whose resolutions expressly state that the contract is "subject to the approval of the Ohio Department of Jobs and Family Services in accordance with current Title IV-D regulations." (Doc. 71, Butler Affidavit and Exhibits 34-36.)

In January 2002, after the Pilat memo announced the change in policy, Butler County extended its NCS contract for another year, but with a ceiling amount of only $25,000. Butler County's 34% local share of $8,500 was to come from CSEA's administrative fund, and not from any volume discount or contribution by NCS. (Def. Exhibit 37) And in 2003, Butler County approved an additional contract year with NCS, but with even lower funding, only $14,999. (Def. Exhibit 38)

Montgomery County CSEA had also become interested in the NCS "volume discount" arrangement, and the Montgomery County Board of Commissioners had formally approved an NCS contract with a face value of $900,000 on September 11, 2001. (Def. Exhibit 12) The Commissioners' Resolution expressly states that the contract is contingent upon the continued availability of funding. The contract was also approved by the Montgomery County prosecuting attorney's office, and was then forwarded to ODJFS for approval for federal funding. After the Pilat memo, the Board of Commissioners rescinded the contract because, as stated in the rescission resolution, ODJFS has determined that "NCS services are not allowable under ODJFS guidelines." (Resolution #02-162, January 29, 2002, Def. Exhibit 12)

PROCEDURAL HISTORY

NCS filed its original complaint in this case in December 2002. The Second Amended Complaint, filed September 10, 2004, alleges several federal and state law claims on behalf of NCS and its clients, the parents and children on whose behalf NCS collects unpaid child support. (Doc. 23) The named Defendants are ODJFS, its then-Director Thomas Hayes, Joe Pilat, and Barbara Stafford, the director of the Office of Child Support Bureau of Policy. The individual defendants are sued in both their official and individual capacities.*fn1

Defendants filed a motion to dismiss all of NCS' claims. (Doc. 24) The Court's April 18, 2005 Order (Doc. 32) dismissed the claims brought on behalf of NCS' clients, concluding that NCS lacked standing to prosecute those claims. The Court also dismissed NCS' antitrust claim, and all claims against ODJFS (and the individual official capacity claims) on Eleventh Amendment grounds. The Court denied the motion to dismiss the federal procedural due process claim and the state law contract claims against the individual defendants, because the question of the existence of a constitutionally protected property interest in the ...


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