847 F. 2d 66 - Lee v. Mihalich Mihalich J

William Lee and the Denver Nursing Home, Inc., brought suit in the district court against Leonard Mihalich and Bradford King seeking damages for abuse of process and malicious prosecution under 42 U.S.C.A. Sec. 1983 (West 1981).1 Both Mihalich and King are investigators in the Medicaid Fraud Control Unit of the Office of the Pennsylvania Attorney General. Lee and the home brought suit seeking damages and attorney's fees after the Court of Common Pleas of Lancaster County held that a criminal prosecution against them for Medicaid fraud was time-barred. In this civil proceeding, King and Mihalich brought a motion before the district court seeking dismissal of the actions against them on the grounds of qualified immunity. The district court denied the motion; the investigators appeal. The trial court has jurisdiction under 28 U.S.C.A. Sec. 1331 (West Supp.1988). An order denying a summary judgment motion for qualified immunity is an appealable final order. Mitchell v. Forsyth, 472 U.S. 511, 530, 105 S.Ct. 2806, 2817, 86 L.Ed.2d 411 (1985); Hynson v. City of Chester, 827 F.2d 932, 933 (3d Cir.1987), cert. denied, --- U.S. ----, 108 S.Ct. 702, 98 L.Ed.2d 653 (1988). Therefore, we have jurisdiction pursuant to 28 U.S.C.A. Sec. 1291 (West Supp.1987).

Because Mihalich and King seek review of the district court's order denying their motion for summary judgment on the basis of qualified immunity, our standard of review over this legal question is plenary. Hynson, 827 F.2d at 934. We hold that the investigators, as a matter of law, are entitled to qualified immunity from liability stemming from this incident. We will therefore vacate the district court's order denying King and Mihalich's motion for summary judgment. In so ruling, we apply the usual Fed.R.Civ.P. 56(c) standard of absence of any genuine issue of material fact necessary to the determination of qualified immunity under the law relating to that subject.

* Appellee William Lee was the owner of the Denver Nursing Home. In December of 1979, Leonard Mihalich, an investigator for the Commonwealth's Medicaid Fraud Control Unit, was assigned to investigate Lee and his nursing home. The home was a participant in Pennsylvania's Medicaid Assistance Program and received federal reimbursements for certain allowable expenses. After receiving documents from the Pennsylvania Department of Public Welfare which indicated an accounting analysis might lead to the discovery of improprieties in claims for reimbursements, the Fraud Unit determined that further investigation into the home's operation was necessary. Bradford King, also an investigator for the Fraud Unit, joined the investigation in June, 1980. Neither Mihalich nor King is an attorney.

The investigation focused on a series of cost reports filed for the fiscal years ending September 30, 1977, 1978 and 1979. Apparently, the last report was filed on January 11, 1980.2 A search warrant, executed in July of 1981, turned up additional evidence purportedly demonstrating fraudulent procurement of Medicaid reimbursements. Following this investigation, on January 12, 1982, King and Mihalich caused two sixty-four count informations alleging Medicaid fraud to be filed against Lee and the Denver Nursing Home. Lancaster County Common Pleas held a two year statute of limitations applied. Because the prosecution was not begun within two years of the last criminal act, it dismissed the actions.

Common Pleas applied Section 5552(a) of Title 42 of the Pennsylvania Consolidated Statutes, 42 Pa.Cons.Stat.Ann. Sec. 5552(a) (Purdon Supp.1987). It requires that criminal prosecutions generally must be brought within two years after the offense is committed. Here, assuming, as did Common Pleas, that the last criminal act occurred on January 11, 1980, the informations filed on January 12, 1982 were untimely if Sec. 5552(a) applies. The investigators had sought to invoke an exception to Sec. 5552(a) set forth at 42 Pa.Cons.Stat.Ann. Sec. 5552(c)(1) (Purdon 1981). It allows a criminal action to be brought within one year of the "discovery" of the offense where fraud is a material element of that offense.3 The Commonwealth had argued before Common Pleas that the fraud was not discovered until execution of the search warrant in July, 1981. If so, the January 12, 1982 informations would be timely under the one year extension of Sec. 5552(c)(1).

Common Pleas rejected the argument and held that the two year statute of limitations barred the criminal action. The court assumed that if the investigators had enough evidence to support the issuance of criminal complaints they had it "by early November of 1980." Common Pleas considered the evidence secured in July of 1981 by execution of the search warrant only cumulative to the earlier evidence the investigators had uncovered. Accordingly, Common Pleas dismissed the criminal charges against Lee and the nursing home.

After dismissal of the criminal actions, Lee and the Denver Nursing Home brought the instant suit in the district court. Their complaint sought damages and attorney's fees under 42 U.S.C.A. Sec. 1983 and 42 U.S.C.A. Sec. 1988 (West 1981) for malicious prosecution and abuse of process.4 They contend that the prosecution was malicious because the investigators disregarded a clear statute of limitations ban.II

Generally, government officials performing discretionary functions enjoy qualified immunity from civil damages for liability when their conduct "does not violate clearly established statutory or constitutional rights of which a reasonable person would have known." Harlow v. Fitzgerald, 457 U.S. 800, 818, 102 S.Ct. 2727, 2738, 73 L.Ed.2d 396 (1982).5 Qualified immunity serves to protect government officials from the personal costs of litigation and the attendant inhibiting effect of potential litigation upon the proper discharge of their official responsibilities. Anderson v. Creighton, --- U.S. ----, 107 S.Ct. 3034, 3038, 97 L.Ed.2d 523 (1987). In furtherance of these policies, the discriminant for qualified immunity focuses on the objective legal reasonableness of an official's acts under law which has been clearly established at the time he acts. Harlow, 457 U.S. at 818-19, 102 S.Ct. at 2738. In Anderson, the Supreme Court further defined the objective state of mind an official must show in order to establish qualified immunity. It said: "The contours of the right must be sufficiently clear that a reasonable official would understand that what he is doing violates that right.... [I]n the light of preexisting law the unlawfulness must be apparent." 107 S.Ct. at 3039. Accordingly, we must determine whether investigators King and Mihalich could have reasonably believed that the criminal prosecution was lawful under the law in the light of the information they possessed when they acted. Anderson, 107 S.Ct. at 3040. Their subjective beliefs are not relevant to our inquiry. Id. Because this matter is before us on appeal from a denial of a motion for summary judgment on the ground of qualified immunity, we must reject King and Mihalich's appeal from its denial if we conclude a reasonable jury could find that the unlawfulness of their actions was so "apparent" that no reasonable investigator could have believed his actions were lawful. Martin v. Malhoyt, 830 F.2d 237, 253-54 (D.C.Cir.1987) (citing Anderson, 107 S.Ct. at 3038). See also Fed.R.Civ.P. 56(c). If on the other hand a reasonable jury could not find that their belief in the lawfulness of their actions was unreasonable, we must reverse and direct the entry of summary judgment. Because the governing law was unclear at the time of the bringing of the charges and the investigators, Mihalich and King, relied upon the determination of a Medicaid Fraud Unit attorney that the prosecution was timely, we hold they are entitled to summary judgment on the basis of qualified immunity.

Lee and his nursing home averred that the manipulation of the statute of limitations evidences King and Mihalich's malice. See Plaintiffs' Amended Complaint p 4. A civil action for Sec. 1983 malicious prosecution requires that: (1) the defendant initiate a criminal proceeding; (2) which ends in plaintiff's favor; (3) which was initiated without probable cause;6 and (4) the defendant acts maliciously or for a purpose other than bringing the defendant to justice. Bell v. Brennan, 570 F.Supp. 1116, 1118 (E.D.Pa.1983). See also Deary v. Three Un-named Police Officers, 746 F.2d 185, 194 n. 11 (3d Cir.1984) (applying Virgin Islands law).7 We have held that a claim for malicious prosecution is actionable under 42 U.S.C.A. Sec. 1983. Losch v. Borough of Parkesburg, 736 F.2d 903, 907 (3d Cir.1984); Jennings v. Shuman, 567 F.2d 1213, 1219-20 (3d Cir.1977). Under these authorities, the Sec. 1983 claim must include the elements of the common law tort as it has developed. Whether we look to the law of the forum, as we did in Deary, or general law, one of the elements of the common law tort is actual malice, a term of art in this as in other contexts. Simpson v. Montgomery Ward & Co., 354 Pa. 87, 102, 46 A.2d 674, 681 (1946) (citing Stewart v. Sonneborn, 98 (8 Otto) U.S. 187, 25 L.Ed. 116 (1879)).8 Actual malice in the context of malicious prosecution is defined as either ill will in the sense of spite, lack of belief by the actor himself in the propriety of the prosecution, or its use for an extraneous improper purpose. Simpson, 354 Pa. at 96, 46 A.2d at 678; Ruffner v. Hooks, 2 Pa. Superior Ct. 278, 282 (1896). See also Restatement (Second) of Torts Sec. 668 (1977). Under this analysis, the elements of liability for the constitutional tort of malicious prosecution under Sec. 1983 coincide with those of the common law tort. Compare Cap v. K-Mart Discount Stores, Inc., 357 Pa. Superior Ct. 9, 12, 515 A.2d 52, 53 (1986) with Bell v. Brennan, supra. The clarity of Pennsylvania law on the statute of limitations issue and the information the investigators possessed are both relevant to the question of malice as it affects not only liability, but also qualified immunity.

Mihalich and King, in filing when they did, relied on 42 Pa.Cons.Stat.Ann. Sec. 5552(c)(1) which allows the bringing of a criminal action within one year of the discovery of the offense where fraud is a material element of that offense. See supra, note 3. In so doing, they had to contend that they had not uncovered enough evidence to discover the existence of the offense of Medicaid fraud until after execution of the search warrant in July, 1981. Common Pleas rejected this contention and dismissed the informations. Because the Pennsylvania law was unclear as to what constituted "discovery" within the meaning of the section of its law extending the statute of limitations for undiscovered offenses involving fraud or concealment, the Common Pleas holding does not establish the violation of clear law needed to supply the malice element of the constitutional tort.

A government official will be denied qualified immunity for having violated a clearly established right when "in the light of preexisting law the unlawfulness [is] apparent." Anderson, 107 S.Ct. at 3039. The state of the law must be considered at the time of the challenged action. Mitchell, 472 U.S. at 528, 105 S.Ct. at 2816. Case law is an obvious starting point for determining the clarity of a point of law at a particular time. Procunier v. Navarette, 434 U.S. 555, 564-65, 98 S.Ct. 855, 861, 55 L.Ed.2d 24 (1978); Forsyth v. Kleindienst, 729 F.2d 267, 277 (3d Cir.1984) (Weis, J., dissenting), aff'd in part, rev'd in part, sub nom. Mitchell v. Forsyth, 472 U.S. 511, 105 S.Ct. 2806, 86 L.Ed.2d 411 (1985).

In dismissing the criminal action, Common Pleas held that King and Mihalich's July 1981 search did not uncover additional evidence of criminal activity. That court refused to accept Mihalich and King's contention that the criminal conduct was not "discovered" until the fruits of the search were examined. In so holding, Common Pleas relied primarily on the decision of the Pennsylvania Superior Court in Commonwealth v. Hawkins, 294 Pa.Superior Ct. 57, 439 A.2d 748 (1982). Hawkins offers some guidance on the question of when an offense is discovered for purposes of Sec. 5552(c)(1) and arguably does support Common Pleas' analysis. However, the decision has no bearing on these investigators' state of mind because it was filed after they acted in this case. Our research reveals no other Pennsylvania appellate court decision interpreting Sec. 5552(c)(1), before or after the charges against Lee and Denver Nursing Home were filed. The absence of case law on this point leads us to conclude that the investigators' error in bringing these untimely charges could not be "apparent" to them when they brought them.9

Of course, information otherwise available to the investigators on the application of the extended statute of limitations when the criminal informations were filed is also relevant to an assessment of the objective legal reasonableness of their actions, i.e., whether their actions "violate clearly established statutory or constitutional rights of which a reasonable person would have known." Harlow, 457 U.S. at 818, 102 S.Ct. at 2738. Before execution of the search warrant, King and Mihalich sought a legal opinion on the statute of limitations problem from John Hall, an attorney in the Medicaid Fraud Unit. Mr. Hall assigned the problem to Robert McIntyre, a legal intern in the Medicaid Fraud Unit, for research. Mr. McIntyre prepared a memorandum concluding that the extended statute of limitations set out at 42 Pa.Cons.Stat.Ann. Sec. 5552(c)(1) would be available in the criminal action against Lee and his nursing home.10 Mr. Hall then approved the execution of the search warrants.11 Mr. Hall's approval of the search warrants and delaying the prosecution pending their execution demonstrates his corollary determination that later criminal prosecution would be timely. The text of the Hall file memorandum, whose existence is uncontradicted, and the circumstance that it was prepared after the investigators sought Hall's advice on the problem, coupled with the McIntyre legal memorandum on the issue, establishes that the investigators acted upon Hall's instructions to delay prosecution until they had executed the search and evaluated its results. Their action in following the Hall proposal was clearly reasonable, given the uncertain state of then existing Pennsylvania law.12 E.g., Street v. Cherba, 662 F.2d 1037 (4th Cir.1981) (consultation with attorney relevant to determination that defendant entitled to qualified immunity).

Because the law pertaining to the controlling Pennsylvania statute of limitations was unclear and the investigators sought the advice of counsel before filing charges, they could reasonably believe that their actions were lawful. On this record, no reasonable jury could find that the unlawfulness of the investigators' actions was so apparent that their claim of qualified immunity must be denied. Further inquiry into King and Mihalich's subjective motivation is therefore unnecessary and immaterial on the issue of qualified immunity. Anderson, 107 S.Ct. at 3040.13 Accordingly, we will vacate the district court's order denying King and Mihalich summary judgment and remand the case to the district court with directions to enter judgment for King and Mihalich.14