SUBJECT:

Clinical Immuno Diagnostic Lab, Inc.,

Petitioner,

Centers for Medicare & Medicaid Services.

DECISION

The certificate issued to Clinical Immuno Diagnostic Lab, Inc. (CID or Petitioner or the laboratory), to engage in the testing of human specimens, pursuant to the Clinical Laboratory Improvement Amendments of 1988 (CLIA), ⁽¹⁾ is revoked. Pursuant to 42 C.F.R. � 493.1844(d)(4)(ii), the revocation of the laboratory's CLIA certificate is effective the date of this decision. ⁽²⁾ By operation of law, the owners and operators of CID are prohibited from owning or operating a CLIA laboratory for two years pursuant to 42 U.S.C. � 263a(i)(3) due to the revocation of the laboratory's CLIA certificate. The two-year prohibition runs from the date of the revocation of CID's certificate pursuant to 42 U.S.C. � 263a(i)(3) - the date of this decision. The per instance civil money penalties (CMPs) of $3,000 for each of 13 alleged standard-level deficiencies not corrected within a period of 12 months from the end of a survey completed in October 2001, are not approved.

I. PROCEDURAL HISTORY

CID was licensed by the State of California and was issued a CLIA certificate by the Centers for Medicare & Medicaid Services (CMS). Pursuant to its CLIA certificate, CID could perform moderate and high complexity laboratory testing. Surveyors from the California Department of Health Services, Laboratory Field Services (the state agency), and CMS completed a recertification survey of CID on December 10, 2002. The surveyors found that the laboratory was out of compliance with six CLIA conditions and several CLIA standards. In a letter dated March 31, 2003, CMS informed the owners and operators of CID that it was imposing sanctions as follows: revocation of CID's CLIA certificate effective May 30, 2003; cancellation of approval to receive Medicare payments for laboratory services; a directed portion of a plan of correction; and a CMP totaling $39,000. CMS Exhibit (CMS Ex.) 2; Joint Stipulation of Facts, September 2, 2003.

By letter dated May 27, 2003 to the CMS Regional Office in San Francisco, Petitioner requested a hearing by an administrative law judge (ALJ). The request for hearing reflects the laboratory as the Petitioner; however, subsequent filings by Petitioner reflect that Jerry Pikover (Owner/Operator), Natalia Pikover (Owner/Operator), Adolfo Chirico (Owner), and Norvelle A. Harris, M.D. (Laboratory Director) are also represented in this proceeding as Petitioners on behalf of the laboratory. First Amendment to Response to Order to Show Cause, July 28, 2003; Petitioners' Motion for Summary Judgment at 1, August 29, 2003; Petitioners' Prehearing Brief at 2, September 26, 2003. ⁽³⁾ Pursuant to 42 U.S.C. � 263a(i)(1), the Secretary must give notice and an opportunity for hearing to the "owner or operator of the laboratory," before suspending or revoking the laboratory's CLIA certificate. The right to hearing is granted by statute to the owners and operators of the affected laboratory. Thus, it is appropriate and consistent with law and fact to conclude that Jerry and Natalia Pikover, Adolfo Chirico, and Norvelle A. Harris, M.D. are real parties in interest and the Petitioners in this case.

The request for hearing was forwarded to the Civil Remedies Division, Departmental Appeals Board (Board), by CMS on May 30, 2003. The case was assigned to me for hearing and decision on June 16, 2003, and I issued a Notice of Case Assignment and Prehearing Case Development Order on that date. By order dated August 11, 2003, I set the case for hearing for December 3 through 5, 2003. On August 29, 2003, Petitioners filed a motion for summary judgment or summary adjudication. CMS filed its brief in opposition to Petitioners' motion on September 18, 2003. By order dated October 3, 2003, I postponed the hearing scheduled to begin on December 3, 2003, and stayed further proceedings pending ruling upon Petitioners' motion. I denied Petitioners' motion for summary judgment in my Order of January 6, 2004, concluding that there were issues of material fact in dispute. I rescheduled the hearing for April 20 through 23, 2004, in Los Angeles, California.

I convened the hearing on April 20, 2004, in Los Angeles, California, and adjourned on April 23, 2004. A transcript of proceedings was prepared in four volumes with pages numbered 1 through 196, 197 through 531, 900 through 1229, and 1230 through 1403. ⁽⁴⁾ CMS offered, and I admitted, CMS Exs. 1 through 24, 25 (except for pages 1-3), 26 through 28, 29 (except for pages 28-37), and 30 through 48. Transcript (Tr.) page 62-64, 81-82, 1236-38, and 1389. Petitioners offered, and I admitted, Petitioners' exhibits (P. Exs.) 1 through 29, 29A, 30, 30A, 31, 31A, 32, 34-41. Tr. 66-75, 906, 1384, 1390. Joseph Stein, Joanne Sparhawk, Karen Fuller, Ora Griner, Gary Yamamoto, Janet Otey, and Cornell Prodan testified for CMS. Steve Huang, Daron Tooch, William Gardner, and Adolfo Chirico testified for Petitioners. The parties submitted opening post-hearing briefs on August 11, 2004, and reply briefs on September 8, 2004. ⁽⁵⁾

II. FINDINGS OF FACT AND CONCLUSIONS OF LAW

A. Findings of Fact

The following findings of fact are based upon the admitted exhibits and the transcript of the proceedings. Citations to transcript pages and exhibit numbers related to each finding of fact may be found in the analysis section of this decision if not listed here.

1. CID was licensed by the State of California and issued a CLIA certificate by CMS and was authorized to perform moderate and high complexity laboratory testing.

2. State agency surveyors and CMS completed a recertification survey of CID on December 10, 2002.

3. By letter dated March 31, 2003, CMS notified the owners and operators of CID that it was imposing sanctions as follows: revocation of CID's CLIA certificate effective May 30, 2003; cancellation of approval to receive Medicare payments for laboratory services; a directed portion of a plan of correction; and a CMP totaling $39,000, based upon a CMP of $3,000 for each of 13 standard-level deficiencies alleged during the survey that ended October 31, 2001, but that CMS alleges were not corrected as of the December 10, 2002 survey of CID. CMS Ex. 2.

4. Petitioners, CID Laboratory, Inc., Jerry Pikover (Owner/Operator), Natalia Pikover (Owner/Operator), Adolfo Chirico (Owner), and Norvelle A. Harris (Laboratory Director), requested a hearing by an ALJ by letter dated May 27, 2003.

5. The state agency previously conducted a complaint investigation from July 18, 2001 through October 31, 2001, at CID and alleged nine condition-level violations with immediate jeopardy. CMS Ex. 9.

6. By letter dated April 3, 2002, CMS notified Petitioners that it proposed to impose sanctions based on allegations from the survey ended October 31, 2001, including the alternative sanction of a CMP of $10,000 per day effective April 8, 2002, which would continue to accrue until its CLIA certificate was suspended; the alternative sanction of a directed plan of correction, which plan of correction required that Petitioners "cease all laboratory testing effective April 8, 2002" for an unspecified time and submit a client list; and the principal sanction of suspension of Petitioners' CLIA certificate effective April 11, 2002, until revocation which would become effective June 2, 2002, if no appeal was filed; and the principal sanction of cancellation of approval to receive Medicare payments effective April 8, 2002. CMS Ex. 5.

7. By letter dated May 2, 2002, Petitioners requested an expedited hearing by an ALJ, which request was never forwarded to the Board by CMS for docketing and assignment to an ALJ. P. Ex. 40.

8. CMS advised Petitioners and multiple addressees by letter dated July 12, 2002, that Petitioners' April 18, 2002 allegation of compliance and plan of correction were not acceptable. CMS Ex. 6.

9. CMS had only proposed and not imposed sanctions against Petitioners as of July 12, 2002. CMS Ex. 6.

10. On July 15, 2002, Petitioner CID filed a civil suit in the United States District Court for the Central District of California seeking a temporary restraining order (TRO) and injunction against the Secretary and CMS to "lift the suspension and revocation of" CID's CLIA certificate. CMS Ex. 48; P. Exs. 29, 30.

11. By letter dated July 18, 2002, Petitioners' counsel Daron Tooch sent a letter to CMS and the U.S. Attorney that set forth settlement terms. P. Ex. 28.

12. By letter dated July 19, 2002, Karen Fuller advised Petitioners that the decision reflected in the CMS letter of April 3, 2002, was reopened and revised. CMS Ex. 7.

13. Petitioners and CMS entered a compromise and settlement as reflected by the offer of settlement contained in the July 18, 2002 letter of Daron Tooch and the acceptance of settlement terms as reflected by the July 19, 2002 letter of Karen Fuller, the essential terms of which provided, inter alia, that Petitioners would dismiss their federal civil suit against the Secretary and CMS in exchange for rescission of all sanctions against CID based upon the October 2001 survey and the issuance of a CLIA certificate for CID for the period October 31, 2000 through October 30, 2002, which performance constituted valuable consideration for the agreement.

14. The July 2002 compromise and settlement between Petitioners and CMS does not reflect that cessation of testing by CID was consideration for the agreement.

15. CMS did not reserve by terms of the compromise and settlement the option to proceed against Petitioner on any gronds related to the October 2001 survey.

16. The compromise and settlement between Petitioners and CMS was fully executed and both parties received the benefit of their bargain.

17. Mr. Tooch, while representing Petitioners, misrepresented in federal district court filings and in communications with CMS representatives, that CID had ceased testing April 8, 2002, when in fact, CID continued to do microbiology testing into July 2002.

18. Petitioners' misrepresentation was made in the course of obtaining a new CLIA certificate for CID for the period October 31, 2000 through October 30, 2002.

B. Conclusions of Law

1. Petitioners' request for hearing was timely and I have jurisdiction.

2. The imposition of an alternative sanction is subject to ALJ review as an initial determination (42 C.F.R. � 493.1844(b)(3)) and includes review of whether, on the facts of this case, it was lawful for CMS to impose a CMP against Petitioners.

3. CLIA gives owners and operators the right to request a hearing to challenge the suspension, limitation, or proposed revocation of their laboratory's CLIA certificate for failure to comply with CLIA conditions and standards. 42 U.S.C. � 263a(i)(1)(C).

4. The Secretary may suspend, revoke, or limit a laboratory's CLIA certificate, if after "reasonable notice and opportunity for hearing," it is found that the owner, operator, or any employee of a laboratory has been guilty of misrepresentation in obtaining the certificate. 42 U.S.C. � 263a(i)(1)(A).

5. The compromise and settlement between the parties as reflected by the July 18, 2002 letter of Daron Tooch and the July 19, 2002 letter of Karen Fuller, involved an offer and acceptance, the parties had the capacity to agree to the settlement terms, the compromise and settlement was supported by valuable consideration, the agreement was fully executed, and both parties received the benefit of their bargain.

6. Strictly from the perspective of enforcing a compromise and settlement, there are no grounds, including fraud or material mistake, which provide a basis to set aside the compromise and settlement of July 2002 as reflected in the letters of Mr. Tooch and Ms. Fuller.

7. The parties' compromise and settlement operates as a merger of and bar to any and all claims CMS might now raise based upon its antecedent claim, the survey ended October 2001, and that survey may not now provide a basis for the imposition of sanctions against Petitioners.

8. Pursuant to 42 U.S.C. � 263a(i)(1)(A), the Secretary and, pursuant to the Secretary's delegation of authority in 42 C.F.R. � 493.1840(a)(1), CMS may initiate action to suspend, limit, or revoke a laboratory's CLIA certificate if CMS finds that "a laboratory's owner or operator or one of its employees has . . . [b]een guilty of misrepresentation in obtaining a CLIA certificate."

9. "Guilty" as used in 42 U.S.C. � 263a(i)(1)(A) is given its common meaning and means that one is responsible for a crime or civil wrong.

10. "Misrepresentation" as used in 42 U.S.C. � 263a(i)(1)(A) is given its common meaning and means a false or misleading assertion or act, or an assertion or act that is not in accord with the facts, and the statute does not impose any element of intent.

11. The plain meaning of 42 U.S.C. � 263a(i)(1)(A) is that any misrepresentation in obtaining a CLIA certificate is sufficient grounds for the Secretary to revoke a CLIA certificate, even if such misrepresentation was negligent or innocent.

12. The fact that a misrepresentation may have been innocent or negligent is no defense to a violation of 42 U.S.C. � 263a(i)(1)(A).

13. Whatever an attorney does in the progress of a cause is considered as if done by the party and is binding upon the party even if the attorney was guilty of gross negligence. 7A C.J.S. Attorney & Client � 221 (2004).

14. Mr. Tooch's misrepresentations in federal district court filings and in communications with CMS representatives, even if innocent or negligent, are attributable to CID, its owners, and its operators.

15. Petitioners' misrepresentation was made in the course of obtaining a new CLIA certificate for CID for the period October 31, 2000 through October 30, 2002.

16. CMS's motives in granting CID a new CLIA certificate for the period October 31, 2000 through October 30, 2002, are irrelevant to a finding of a violation of 42 U.S.C. � 263a(i)(1)(A).

17. The preponderance of the evidence shows that Petitioners are guilty of a misrepresentation in obtaining a CLIA certificate for CID for the period October 31, 2000 through October 30, 2002, and pursuant to 42 U.S.C. � 263a(i)(1)(A), there is a basis for the revocation of Petitioners' CLIA certificate.

18. The compromise and settlement of the parties bars CMS from imposing a CMP based upon the survey of October 2001.

19. CLIA does not give owners and operators the right to challenge the imposition of the two-year ban of 42 U.S.C. � 263a(i)(3).

20. Pursuant to 42 C.F.R. � 493.2, an "operator" of a CLIA laboratory is the individual or group of individuals, including the laboratory director, who oversees all facets of the operation of a laboratory and who bears primary responsibility for the safety and reliability of the results of all specimen testing performed in that laboratory.

21. The regulatory definition of operator and the comprehensive description of a director's responsibilities establish a rebuttable presumption that a director is also an operator. 42 C.F.R. �� 493.2; 493.1403; 493.1405; 493.1407; 493.1441; 493.1443; 493.1445.

22. Pursuant to 42 U.S.C. � 263a(i)(3), the owners and operators of a non-compliant laboratory that has its CLIA certificate revoked are not eligible to own or operate another CLIA laboratory for two years.

23. There has been no issue raised by Petitioners as to the identity of responsible owners and operators who are subject to the two-year ban of 42 U.S.C. � 263a(i)(3).

III. ANALYSIS

A. Issue

Whether there is a basis for the revocation of Petitioners' CLIA certificate and the imposition of other remedies.

B. Applicable Law

CLIA establishes requirements for all laboratories that perform clinical diagnostic tests on human specimens and provides for federal certification of such laboratories. Pub. L. No. 100-578, amending section 353 of the Public Health Service Act, codified at 42 U.S.C. �� 263a, 1302, 1395x(e). The purpose of CLIA is to ensure the accuracy and reliability of laboratory tests and, hence, the public health of all Americans. See H.R. Rep. No. 100-899, at 8, 18 (1988), reprinted in 1988 U.S.C.C.A.N. 3828, 3839. CLIA grants the Secretary of Health and Human Services (the Secretary) broad enforcement authority, including the ability to suspend, limit, or revoke the CLIA certificate of a laboratory that is out of compliance with one or more requirements for certification. The Secretary may also suspend, revoke, or limit a laboratory's CLIA certificate, if after "reasonable notice and opportunity for hearing," it is found that the owner, operator, or any employee of a laboratory has been guilty of misrepresentation in obtaining the certificate. 42 U.S.C. � 263a(i)(1)(A). The Secretary has exercised his authority under 42 U.S.C. � 263a(f) and issued regulations implementing CLIA. See 42 C.F.R. Part 493.

The Secretary's regulations delegate to CMS broad authority to ensure that laboratories perform as Congress intended, including authority to inspect and sanction laboratories that fail to comply with the regulatory requirements. CMS certification of a laboratory under CLIA is dependent upon whether the laboratory meets the conditions for certification set out in the statute and regulations. 42 U.S.C. � 263a(f)(1); 42 C.F.R. � 493.1 et seq. Pursuant to 42 C.F.R. � 493.1840(a)(1), CMS may initiate action to suspend, limit, or revoke a laboratory's CLIA certificate if CMS finds that "a laboratory's owner or operator or one of its employees has . . . [b]een guilty of misrepresentation in obtaining a CLIA certificate." CMS may impose principal or alternative sanctions when it finds that a laboratory has a "condition-level" deficiency. 42 C.F.R. � 493.1804(b)(2). Principal sanctions are suspension, limitation, or revocation of a CLIA certificate. 42 C.F.R. � 493.1806(b). Alternative sanctions are a directed plan of correction, state on-site monitoring, and a CMP. 42 C.F.R. � 493.1806(c). Cancellation of Medicare payments is also authorized as a principal sanction when condition-level deficiencies are found (42 C.F.R. �� 493.1807(a); 493.1842(a)(2)) and is required when CMS suspends or revokes a laboratory's certificate (42 C.F.R. � 493.1842(a)). Standard-level deficiencies are not an adequate basis for the imposition of a sanction, except when the laboratory fails to correct such deficiencies within 12 months after the last day of inspection. 42 C.F.R. � 493.1816(b).

Each condition-level requirement of the regulations represents a major division of laboratory services to be offered by the laboratory or establishes an important environmental protection for the laboratory. Since each "condition" represents a major division of laboratory services to be offered by the laboratory or an important safety requirement, it has been held that a failure by a laboratory to comply with even a single applicable condition can represent a critical breakdown in one of the major health care delivery or safety systems of the laboratory. Ward General Practice Clinic, DAB No. 1624, at 2 (1997). Therefore, violation of just one condition-level deficiency can be grounds for a principal sanction, including revocation of a laboratory's CLIA certificate. 42 C.F.R. � 493.1804(b); Edison Medical Laboratories, Inc., DAB No. 1713 (1999).

If, on inspection, a laboratory is found to have condition-level deficiencies that pose immediate jeopardy, ⁽⁶⁾ CMS requires the laboratory to take immediate action to remove the jeopardy and may impose alternative sanctions to assist. If, on revisit, the deficiencies remain, CMS may suspend or limit and later revoke the laboratory's CLIA certificate. CMS is also delegated authority to bring a civil suit for an injunction against a laboratory in specified circumstances where there is immediate jeopardy. 42 C.F.R. � 493.1812. Condition-level deficiencies that do not constitute immediate jeopardy and standard-level deficiencies that do not rise to condition level are treated differently. A laboratory is generally accorded 12 months to correct such deficiencies before action is taken to suspend, limit, or revoke the laboratory's CLIA certificate. 42 C.F.R. �� 493.1814, 1816.

CLIA provides at 42 U.S.C. � 263a(i)(1) that a laboratory's certificate may be suspended, revoked, or limited only after reasonable notice and opportunity for hearing to "the owner or operator of the laboratory." The implementing regulations provide that a laboratory or prospective laboratory dissatisfied with an initial determination listed in 42 C.F.R. � 493.1844(b) is entitled to a hearing before an ALJ. 42 C.F.R. � 493.1844(a). The hearing procedures found in subpart D of Part 498 are incorporated by reference. 42 C.F.R. � 493.1844(a)(2). The "suspension, limitation, or revocation of the laboratory's CLIA certificate . . . because of noncompliance . . ." is the first listed initial determination subject to hearing before an ALJ. 42 C.F.R. � 493.1844(b)(1). The imposition of alternative sanctions is also an initial determination subject to appeal (42 C.F.R. � 493.1844(b)(3)), but the determinations as to which alternative sanctions to impose and the amount of the CMP to be imposed are not. 42 C.F.R. �� 493.1844(b)(3) & (c)(4). The general rule is that suspension, limitation, or revocation of a CLIA certificate is not effective if appealed, and not imposed until the ALJ issues a decision, unless CMS declares immediate jeopardy, and then there is no delay in the suspension or limitation of the offending laboratory's CLIA certificate. 42 C.F.R. � 493.1844(d)(2). Section 498.74 of 42 C.F.R. provides that, absent appeals to the DAB or the U.S. District or Circuit Courts, my decision is final.

In addition to sanctions directed against laboratories, CLIA provides the following with respect to the owners and operators of non-compliant laboratories:

No person who has owned or operated a laboratory which has had its certificate revoked may, within 2 years of the revocation of the certificate, own or operate a laboratory for which a certificate has been issued under this section.

42 U.S.C. � 263a(i)(3).

The implementing regulations do not include any express provision implementing or imposing this two-year prohibition against an offending owner or operator. ⁽⁷⁾ However, the regulations provide that CMS may suspend, limit, or revoke a laboratory's CLIA certificate if it finds that the owner or operator has -

[w]ithin the preceding two-year period, owned or operated a laboratory that had its CLIA certificate revoked. (This provision applies only to the owner or operator, not to all of the laboratory's employees.)

42 C.F.R. � 493.1840(a)(8).

CLIA does not include a definition of the term operator. However, the regulations define an "operator" as:

the individual or group of individuals who oversee all facets of the operation of a laboratory and who bear primary responsibility for the safety and reliability of the results of all specimen testing performed in that laboratory. The term includes -

(1) A director of the laboratory if he or she meets the stated criteria . . . .

42 C.F.R. � 493.2.

The "stated criteria" for a laboratory director to be considered an operator are those criteria described in the introductory sentence of the above-quoted section, i.e., whether a person oversaw all facets of the operation of the laboratory and bore primary responsibility for the safety and reliability of the results of specimen testing performed in the laboratory. Sentinel Medical Laboratories, Inc., DAB No. 1762, at 13 (2001), aff'd, Teitelbaum v. Health Care Financing Admin., No. 01-70236 (9^th Cir. Mar. 15, 2002), reh'g denied, No. 01-70236 (9^th Cir. May 22, 2002); Sol Teitelbaum, M.D., DAB No. 1849, at 8 n.7 (2002). It is a condition-level requirement that a CLIA-certified laboratory have a qualified laboratory director who is required to assume oversight and responsibility for the laboratory and the results of its testing. See 42 C.F.R. �� 493.1403, 493.1405, 493.1407, 493.1441, 493.1443, & 493.1445. Thus, the regulation creates a rebuttable presumption that a laboratory director is an operator of the laboratory within the meaning of the regulations and CLIA.

The allocation of the burden of proof in an appeal of CMS's sanctions is set forth in Hillman Rehabilitation Center, DAB No. 1611 (1997), aff'd, Hillman Rehabilitation Center v. HHS, No. 98-3789 (GEB) (D.N.J., slip op. May 13, 1999); see also Edison, DAB No. 1713 (Hillman burden of proof applicable in CLIA appeals). At a hearing, CMS has the burden of coming forward with sufficient evidence to prove a prima facie case of noncompliance with one or more CLIA conditions. The petitioner then has the ultimate burden of showing by a preponderance of the evidence that it was not out of compliance with the conditions placed at issue by CMS in its prima facie case. Regarding the imposition of sanctions, the issue to be resolved by the ALJ is not whether CMS properly exercised discretion in imposing either principal or alternative sanctions, but rather, whether a basis existed for the imposition of sanctions under governing statutory and regulatory authorities based upon the evidence before the ALJ, i.e. the ALJ resolves these issues de novo. Cf. Emerald Oaks, DAB No. 1800 (2001).

C. Discussion

1. I have jurisdiction to review the legal and factual basis for the imposition of principal and alternative sanctions.

The Secretary has clearly given CMS broad discretion for implementing CLIA, but that discretion is not unlimited. CMS cites 42 C.F.R. � 493.1844(c)(4), which provides that "[t]he determination as to which alternative sanction or sanctions to impose, including the amount of a civil money penalty to impose per day or per violation" is not an initial determination subject to review by an ALJ. CMS Reply at 34. CMS implies that this regulatory language precludes ALJ jurisdiction to review imposition of a CMP by CMS. This interpretation, if accepted, would violate the Act, which specifically provides for review of the imposition of a CMP, and would be inconsistent with other regulations of the Secretary. Thus, I reject CMS's suggestion that I have no jurisdiction to review whether its proposed imposition of a CMP is contrary to law.

A CMP is an "alternative sanction" that the Secretary has authorized CMS to impose pursuant to 42 C.F.R. � 493.1806(c). The Secretary has specifically granted a laboratory a right to appeal the imposition of a CMP pursuant to 42 C.F.R. � 493.1834(e)(2) (laboratory has 60 days from the date of receipt of the notice of intent to impose a CMP to request a hearing). Further, 42 C.F.R. � 493.1844(b)(3) defines the imposition of an alternative sanction as an initial determination subject to appeal and review. While CMS is correct that 42 C.F.R. � 493.1844(c)(4) provides that its choice of alternative sanctions and the amount of the CMP are not reviewable, 42 C.F.R. � 493.1844(c)(4) does not deprive Petitioners of the right to hearing on the issue of whether imposition of an alternative sanction is consistent with section 1846 of the Act, CLIA, and implementing regulations.

My interpretation of the regulations is consistent with the related statutes. Section 1846(a) of the Act (42 U.S.C. � 1395w-2(a)) (applicable to those laboratories that are Medicare providers) and 42 U.S.C. � 263a(h) (CLIA) (applicable to all laboratories subject to CLIA) authorize the Secretary to impose intermediate sanctions ⁽⁸⁾ against a laboratory in violation of CLIA. Section 1846(b)(1) of the Act mandates that the Secretary "develop and implement" a range of intermediate sanctions and "appropriate procedures for appealing determinations relating to the imposition of such sanctions." Section 1846(b)(2)(A) of the Act also provides that "[t]he provisions of section 1128A (other than subsections (a) and (b)) shall apply to a civil money penalty . . . ." Section 1128A(c)(2) of the Act requires that a party have notice and a right to hearing before a CMP may be imposed. Title 42 U.S.C. � 263a(h)(3) requires that the Secretary develop procedures that provide for notice and appeal of "determinations relating to the imposition of intermediate sanctions." The applicable statutes clearly require that in the procedures for imposing intermediate sanctions, the Secretary accord a laboratory the right to appeal the imposition of an intermediate sanction.

The right to appeal was certainly recognized by the drafters of 42 C.F.R. � 493.1844 in a response to a comment about appealing a CMP amount:

the amount of a civil money penalty to impose per day or per violation is not an initial determination and therefore is not subject to appeal; rather, the imposition of an alternative sanction, (in this case a civil money penalty) is the action that is subject to appeal.

57 Fed. Reg. 7218, 7229 (Feb. 28, 1992).

Thus, I conclude that I have jurisdiction to determine whether, on the facts of this case, it was lawful for CMS to impose an intermediate sanction or alternative sanction. There is no dispute that I have jurisdiction to consider the imposition of the principal sanctions of suspension and revocation of Petitioners' CLIA certificate. 42 C.F.R. � 493.1844(b)(1).

2. The parties' compromise and settlement related to the October 2001 survey resolved all issues related to that survey and bars further enforcement action by CMS on the findings of that survey.

The request for hearing before me was provoked by the CMS notice of March 31, 2003, which advised Petitioners that sanctions were being imposed based on the survey completed on December 10, 2002. However, the March 31, 2003 notice of sanctions and an earlier CMS letter dated February 5, 2003, refer to an earlier survey from October 31, 2001, and an allegation that Petitioners misrepresented that CID had ceased testing on April 8, 2002. CMS Exs. 1- 2. The March 31, 2003 notice of sanctions indicates at page 7 that the $39,000 CMP is based upon 13 standard-level deficiencies not corrected within a year of the completion of the October 31, 2001 survey. ⁽⁹⁾ CMS Ex. 2, at 7 (Emphasis added).

Petitioners argued in their motion for summary judgment and in post-hearing briefing (Petitioners' Motion for Summary Judgment; P. Brief at 6-8, 28-33; and P. Reply at 34-35) that consideration of the October 31, 2001 survey and the allegation that Petitioners did not cease testing on April 8, 2002, is barred for all purposes. Petitioners assert that CMS previously rescinded all remedies associated with the October 31, 2001 survey pursuant to a settlement agreement, as reflected by the CMS notice of reopening and revision dated July 19, 2002. CMS Ex. 7. Petitioners further assert that, pursuant to the settlement agreement, the December 10, 2002 survey would only be based on specimens processed by Petitioners after the settlement and the status and activities of the laboratory at the time of the survey. Petitioners request that I conclude as a matter of law that the surveyors' consideration of the October 2001 survey "poisoned" the December 2002 survey and, therefore, the results of the December 2002 survey should be found to be invalid. In the alternative, Petitioners ask that I hold that the October 31, 2001 survey results are not a proper basis for a remedy. Petitioners also request that I summarily conclude that Petitioners did not misrepresent regarding ceasing testing on April 8, 2002, and/or that any representations in that regard are not sufficient grounds for suspension, limitation, or termination of Petitioners' CLIA certificate pursuant to 42 C.F.R. � 493.1840(a)(1).

CMS, in its notice of proposed sanctions dated February 5, 2003, advised Petitioners that the proposed sanctions were:

due to your laboratory's failure to correct all deficiencies within 12 months after the last day of the October 31, 2001 survey, due to the laboratory's misrepresentation in its efforts to maintain CLIA recertification, and due to the laboratory's failure to comply with the certificate requirements and performance standards, as evidenced by the findings of the survey completed on December 10, 2002. . . .

CMS Ex. 1, at 7 (emphasis added). In its notice of imposition of sanctions dated March 31, 2003, CMS advised Petitioners:

no material evidence or other information was submitted by the laboratory on February 20, 2003, to disprove (1) that the laboratory failed to correct all Condition-level and standard-level deficiencies within 12 months of October 31, 2001; (2) that the laboratory misrepresented that it had completely ceased testing on April 8, 2002; and (3) that as of February 20, 2003, CID remains out of compliance with the certificate requirements and performance standards of CLIA.

CMS Ex. 2, at 6 (emphasis added). CMS imposed a CMP of $39,000, which was calculated as $3,000 for each of 13 standard-level deficiencies not corrected within 12 months of the completion of the October 31, 2001 survey. Id. at 7.

CMS agreed in its brief in opposition to Petitioners' motion for summary judgment that present sanctions are based on standard-level deficiencies cited at the October 31, 2001 survey but not corrected as of the December 10, 2002 survey; misrepresentation that the laboratory ceased testing on April 8, 2002; and non-compliance with other CLIA conditions at the time of the December 2002 survey. CMS Opposition at 2. CMS argued in its prehearing brief that standard-level deficiencies from the October 31, 2001 survey were not corrected by the December 2002 survey. CMS Prehearing Brief at 25-29. CMS also argued that Petitioners misrepresented through counsel that CID had ceased testing April 8, 2002, and that this was an independent basis for CMS to impose sanctions. Id. at 30-31. CMS repeated the arguments in its post-hearing briefs. CMS Brief at 28-34; CMS Reply at 6, 33-35. In its reply brief, however, CMS argues that there was no "settlement agreement" because of the "fraudulent misrepresentation, through counsel," that Petitioners had ceased testing as of April 8, 2002. CMS Reply, at 34. CMS does not dispute that there was some agreement between the parties regarding the October 2001 survey that resulted in Petitioners withdrawing a federal civil suit against CMS in return for CMS issuing the letter of July 19, 2002, and issuing Petitioners a new CLIA certificate. CMS Opposition at 3. CMS has not, however, conceded all the terms of the agreement alleged by Petitioners or the effect of the alleged terms of the agreement. CMS's argument that whatever agreement there was, was void or voidable due to misrepresentation, is a new theory.

Initially, it is necessary to determine whether or not there was a settlement agreement, and, if there was an agreement, its terms. If there was no settlement agreement, Petitioners and CMS have given me no reason not to consider the alleged deficiencies from the October 2001 survey. If there was a settlement agreement, its terms may have wholly or partially resolved issues related to deficiencies from the survey of October 2001 and whether CMS may sanction Petitioners on the basis of those deficiencies. I am mindful that both parties agreed initially in this action that there was an agreement related to the October 2001 survey and the federal district court suit Petitioners filed, although CMS now takes the position that that agreement may have been void from the outset due to a misrepresentation by Petitioners through counsel.

No document has been offered as evidence that purports to be a "settlement agreement" between Petitioners and CMS, i.e. a single document signed by both parties or their representatives that contains the terms of the settlement or compromise agreement. Rather, I have been given various documents that purportedly reflect some of the terms of the agreement with both parties offering parol evidence to round out the terms to their liking. CMS has offered as evidence the statement of deficiencies (SOD) (Form CMS 2567) for the survey of Petitioners completed on October 31, 2001 (CMS Ex. 9); the CMS letter dated April 3, 2002, "RE: Proposed Sanctions - Conditions Not Met, Immediate Jeopardy (CMS Ex. 5); and the CMS letter dated July 19, 2002, "RE: Reopening and Revision of April 3, 2002 Notice (CMS Ex. 7). CMS also provided a copy of a declaration of Joseph Stein, Assistant Regional Counsel with the United States Department of Health and Human Services (HHS), who acted as counsel for CMS in the federal district court action brought by CID. CMS Ex. 47. Cornell Prodan and Karen Fuller, both from CMS, testified regarding the alleged agreement between CMS and Petitioners. Joseph Stein also testified regarding the alleged agreement. Petitioners offered the declaration of Daron L. Tooch in which he indicates that he was the attorney for Petitioners who negotiated a settlement with the government as evidenced by the CMS letter of July 19, 2002. P. Ex. 28. Attached to Mr. Tooch's declaration is his July 18, 2002 letter to Assistant U.S. Attorney Russell Chittenden and CMS counsel Kohn and Stein in which he sets forth his understanding of the settlement terms. Id. at 4, 6-7. Mr. Tooch also testified at the hearing. Petitioners also provided a letter from Petitioners' attorney Christopher Doan to Karen Fuller at CMS dated February 20, 2003, in which Mr. Doan recounts, among other things, Petitioners' view of the settlement terms. P. Ex. 31. Both parties provided me copies of documents from the federal district court action. CMS Ex. 48; P. Exs. 29-30.

I find it necessary to review the factual context before examining whether or not there was a settlement, and, if so, its terms, and effect.

The SOD for the survey completed October 31, 2001, is a 124-page document that records the results of a complaint investigation conducted from July 18, 2001 through October 31, 2001, a duration of more than three months. CMS Ex. 9, at 1. The surveyors found nine condition-level violations and concluded immediate jeopardy was present. Id. at 1-4. ⁽¹⁰⁾ The state agency notified Petitioners of the findings of the October 2001 survey by letter dated December 17, 2001. It is not clear when the surveyors actually determined after the three-month-long survey that immediate jeopardy was posed by Petitioners' deficient practices. However, it is clear that the first notice to Petitioners that immediate corrective action was required to protect patients and the public from imminent and serious risk to human health did not occur until 47 days after the survey was completed. By its letter, the state agency advised Petitioners that nine condition-level deficiencies and numerous standard-level deficiencies were found; that there was immediate jeopardy; and that the state would recommend to CMS that sanctions including a CMP and suspension and revocation of the laboratory's CLIA certificate be imposed if compliance was not achieved. The state agency gave Petitioners ten days to submit a credible allegation of compliance and plan of correction to avoid having the matter sent to CMS for sanctions. CMS Ex. 3. The state agency advised Petitioners by letter dated February 13, 2002, that Petitioners' submission in response to the December 2001 state agency letter was received but that it did not constitute a credible allegation of compliance or demonstrate that immediate jeopardy had been removed and, the state agency advised, the matter was being referred to CMS for action. CMS Ex. 4.

A CMS notice of proposed sanctions dated April 3, 2002, sent to Petitioners and various individuals, recounts the history of the October 2001 survey and the state agency actions. CMS alleged in the notice the nine condition-level violations and numerous standard-level violations found by the survey and that immediate jeopardy continued to exist due to Petitioners' deficient acts and practices. CMS also advised Petitioners that it concurred with the state agency determinations that Petitioners failed to remove jeopardy or achieve compliance. ⁽¹¹⁾ CMS Ex. 5, at 1-3. CMS also alleged for the first time that Petitioners made a "misrepresentation in [their] efforts to maintain a CLIA certification" and failed to turn over requested documents. Id. at 3. CMS advised Petitioners that it was proposing to impose the alternative sanction of a CMP of $10,000 per day effective April 8, 2002, which would continue to accrue until its certificate of compliance was suspended; the alternative sanction of a directed plan of correction and that plan of correction required that Petitioners "cease all laboratory testing effective April 8, 2002" for an unspecified time and submit a client list; the principal sanction of suspension of Petitioners' CLIA certificate effective April 11, 2002, until revocation which would become effective June 2, 2002, if no appeal was filed; and the principal sanction of cancellation of approval to receive Medicare payments effective April 8, 2002. Id. at 3-4. CMS advised Petitioners that, because the laboratory's CLIA certificate expired on "October 30, 2000," CMS was administratively extending the expiration date until the sanction action was final. Id. at 4. CMS advised Petitioners of the right to request a hearing by an ALJ, and that the cease testing order and suspension would go into effect on April 8 and 11, respectively, whether or not an appeal was filed. Id. at 4-5. Cornell Prodan of the CMS Regional Office testified that, in April 2002, he reviewed the documents submitted by the state agency related to the October 2001 survey and that he concurred with the condition-level violations alleged. Mr. Prodan also identified the CMS letter of April 3, 2002 at CMS Ex. 5, which he helped draft, and confirmed that it was a notice of proposed sanctions. Mr. Prodan testified that he conducted the review of Petitioners' response to the CMS letter of April 3, 2002, and the result of his review is contained in the CMS letter of July 12, 2002, at CMS Ex. 6, which he drafted. Tr. 91-97, 116-18.

CMS advised Petitioners and multiple addressees by letter dated July 12, 2002, that Petitioners' April 18, 2002 allegation of compliance and plan of correction were not acceptable. CMS Ex. 6. In its letter, CMS states,

[t]he evidence shows that your laboratory has not achieved compliance or implemented a system of quality assurance able to sustain compliance to a level that could justify a rescinding of the sanction actions proposed in our April 3, 2002 notice.

Id. at 2 (emphasis added). This curious language I interpret to mean that CMS was not rescinding its proposed sanction action, rather than that CMS was not rescinding sanctions already in effect. ⁽¹²⁾ Mr. Prodan testified that he prepared the initial draft of this letter and, at that time, Petitioners were not yet being sanctioned. Tr. 97. CMS acknowledged in its July 12, 2002 letter that it had received a request for expedited hearing ⁽¹³⁾ from Petitioners' counsel dated May 2, 2002. CMS Ex. 6, at 1. While counsel's request for an expedited hearing and allegations in its subsequent federal lawsuit for a TRO indicate that Petitioners believed the CMS sanction of suspension ⁽¹⁴⁾ was already in effect, I see no evidence that CMS had actually imposed the sanction. The July 12, 2002 letter includes a detailed rejection of Petitioners' allegation of compliance and plan of correction. CMS states "[i]n summary, all submissions received from your laboratory to date fail to demonstrate that deficiencies resulting in Condition-level non-compliance and immediate jeopardy to patient health and safety did not exist." Id. at 22. The past tense reference, i.e. "immediate jeopardy to patient health and safety did not exist," suggests that immediate jeopardy was abated at some point, but that point is not identified. In the next sentence of the letter, CMS states that "submissions to date also do not show that your laboratory has achieved compliance by correcting all Condition-level deficiencies and removing immediate jeopardy." Id. This language suggests that not only do the condition-level deficiencies continue, but also that immediate jeopardy continued as of July 12, 2002. ⁽¹⁵⁾ CMS advised Petitioners that they were being given a final ten-day period in which to demonstrate compliance or "sanctions will be imposed." Id. This language clearly indicates to me that CMS had not imposed any of the sanctions it had proposed in its April 3, 2002 notice of proposed sanctions. CMS was specific that, if a credible allegation of compliance and acceptable plan of correction were submitted by July 22, 2002, a follow-up survey would be done. If no credible allegation and plan of correction was received, or if Petitioners were found noncompliant on revisit, the sanctions proposed in CMS's April 3, 2002 letter would be imposed, and Petitioners' May 2, 2002 request for a hearing would be forwarded to the Board. Id. at 22-23.

On July 19, 2002, seven days after the July 12 letter and three days before the July 22, 2002 deadline, Karen Fuller, Acting Director, CLIA Operations, Division of State Operations, for the San Francisco Regional Office of CMS, signed a letter. The July 19 CMS letter states that, in a letter also dated July 19, 2002, counsel for Petitioners, Daron Tooch, requested that CMS reconsider the determinations "bearing on CID's CLIA certificate." CMS Ex. 7, at 1. Ms. Fuller indicates that "[a]fter carefully reviewing all the particular circumstances of this case, we have concluded that it is appropriate to grant this request (footnote omitted)." Id. There is no indication what "circumstances" were reviewed in the period between receipt of the request for reconsideration dated July 19 and the preparation and issuance of the CMS letter on that same day. There is no July 19 letter from Petitioners' counsel Tooch to CMS in evidence. I have in evidence a letter from Mr. Tooch to Assistant U.S. Attorney Chittenden and counsel for CMS, Brenda Kohn and Joseph Stein, dated July 18, 2002, which starts as follows:

This letter is to confirm our telephone conversation today in which our clients agreed to settle the above-referenced action and resolve the sanctions against CID on the following grounds . . . .

P. Ex. 28, at 4. ⁽¹⁶⁾ The letter goes on to specify terms of a settlement agreement. Mr. Tooch concluded his letter "I trust this letter accurately sets forth our agreement." Id. at 7. Mr. Tooch does not request reopening and revision or reconsideration by CMS in his letter of July 18, 2002. However, his letter indicates that the parties had agreed on a procedure that involved Petitioners sending "a letter to Ms. Fuller requesting that CMS reopen and revise its survey of CID. . . ." Id. at 6. If a letter requesting reconsideration exists, it has not been presented to me for consideration. Although not mentioned in any detail in Mr. Tooch's letter, the settlement related to a civil suit Petitioners filed on July 15, 2002, in the United States District Court for the Central District of California for a TRO and injunction against the Secretary and CMS to require CMS to lift the sanctions of suspension and revocation of Petitioners' CLIA certificate, to permit Petitioners to perform testing and billing of Medicare and Medicaid, and to require CMS to release Medicare and Medicaid funds due for the period while Petitioners were under suspension. CMS Ex. 48; P. Exs. 29, 30. ⁽¹⁷⁾

A partial chronology is helpful to gain perspective on the events leading to Petitioners' action in federal court and the CMS letter of July 19, 2002.

�July 18, 2001 - complaint investigation survey began.

�October 31, 2001 - complaint investigation survey ended, which led to the SOD bearing that date.

�December 17, 2001 - state agency notified Petitioners of condition and standard-level deficiencies and that there was immediate jeopardy.

�February 13, 2002 - state agency notified Petitioners that their allegation of compliance and plan of correction were not acceptable, immediate jeopardy had not been abated, and the matter was being referred to CMS for sanctions.

�April 3, 2002 - CMS notice of proposed sanctions to be effective April 8 and 11, 2002, and administrative extension of Petitioners' CLIA certificate to completion of the sanction action.

�May 2, 2002 - Petitioners' request for an expedited hearing by letter from counsel.

�July 12, 2002 - CMS notice that Petitioners' April 18, 2002 allegation of compliance and plan of correction were unacceptable, that Petitioners continued to be deficient and there was immediate jeopardy, and establishing a final deadline of July 22, 2002, for final submissions by Petitioners before sanctions were imposed.

�July 15, 2002 - Petitioners file an action for a TRO and injunction in federal district court to restrain and enjoin CMS's sanctions.

�July 18, 2002 - Petitioners' counsel Tooch's letter to CMS and Assistant U.S. Attorney that set forth settlement terms.

�July 19, 2002 - Letter from Karen Fuller to Petitioners setting forth CMS's actions.

Mr. Prodan testified that he was familiar with Ms. Fuller's July 19, 2002 letter to Petitioners. His understanding of the agreement with Petitioners "was that because of legal issues, the case was going to be reopened and revised and the Laboratory was going to start fresh with new equipment and new personnel. Essentially a brand new Lab . . . ." Tr. 98. Mr. Prodan believed that the laboratory had stopped testing on April 8, 2002, based upon statements made by Petitioners' counsel Tooch during teleconferences on July 17 or 18, 2002. Mr. Prodan believed that if the laboratory had stopped testing, then there was no longer an issue of immediate jeopardy. Id. at 98-99, 120, 139-41, and 156. Mr. Prodan was subsequently assigned to participate in the December 2002 survey of CID and he was under the belief that the laboratory had stopped testing for a time and was essentially a new lab with "new management and new personnel and new equipment." Id. at 103, 142-44, 148, and 156. According to Mr. Prodan, the December 2002 survey team only looked at work done by the laboratory after July 2002, which he believes was consistent with the agreement between CMS and Petitioners. Id. at 107. Mr. Prodan testified that, after the on-site survey in December 2002, the survey team was working on its findings when it was recognized that there was an issue that Petitioners had not corrected standard-level deficiencies that had been cited at the October 2001 survey. Id. at 107-08. Mr. Prodan identified CMS Ex. 10, pages 1 through 17, as documents provided to him by the laboratory reflecting that testing and reporting of results continued at CID during the period April 8 to July 18, 2002, although some of the reported results were referrals from other laboratories. Id. at 108-09, 111. Entries on CMS Ex. 10, pages 16 through 17, show that reports of results were released on June 29, 2002. Mr. Prodan also identified the document at CMS Ex. 10, page 125, as showing that Petitioners accepted referrals from another laboratory after April 8, 2002. Id. at 112. Mr. Prodan testified that he believed, based upon evidence he saw, that Petitioners actually continued testing into July 2002. Id. at 113-14. Mr. Prodan felt as if he could not trust anything the laboratory did after having been told that testing had ceased but then finding evidence of significant amounts of testing after the date testing supposedly ceased. Id. at 114.

Joseph Stein, Assistant Regional Counsel in the HHS San Francisco office, testified that he was a participant in a teleconference on July 18, 2002, due to his position as agency counsel assigned to work with the U.S. Attorney's office on Petitioners' lawsuit in the federal district court. He recalled that the purpose of the teleconference was to find a resolution to Petitioners' pending court and administrative action. He noted an inconsistency in Petitioners' application for a restraining order and the supporting affidavit - one document indicated that Petitioners ceased testing on April 8, 2002, but the other document indicated otherwise. He recalled that the inconsistency was discussed with Mr. Tooch, counsel for Petitioners, who took the position that the laboratory had stopped testing. Mr. Stein believed that it was important to his client, CMS, specifically Karen Fuller, the decisionmaker, to know whether or not Petitioners had stopped testing. Tr. 163-76.

I called as a witness Karen Fuller, who signed the July 19, 2002 CMS letter as the Acting Director, CLIA Operations, Division of State Operations, for the San Francisco Regional Office of CMS. Ms. Fuller testified that the July 19, 2002 CMS letter reflected her decision to reopen and revise the prior decision of CMS reflected in the notice of proposed sanctions dated April 3, 2002. Tr. 375. Ms. Fuller testified that she relied upon Petitioners' representation that testing had ceased on April 8, 2002, because if the laboratory was not testing, it was "not harming patients." Id. at 377. Given her belief that the laboratory had previously ceased testing and taken appropriate actions to abate jeopardy and correct deficiencies, Ms. Fuller authorized Petitioners to immediately resume testing upon issuance of the July 19, 2002 letter, subject to future inspection. Id. at 377-78, 381-82. She wanted to end Petitioners' lawsuit against the government to avoid risk to the government, but she declined to articulate what the perceived risks were. Id. at 378-81.

Petitioners called Daron L. Tooch, who was retained by Petitioners' principals on April 11, 2002, to represent the laboratory. Tr. 1263. Mr. Tooch sent the May 2, 2002 letter requesting an expedited hearing, based upon his belief that the April 3, 2002 letter that declared immediate jeopardy triggered the right to an expedited hearing. Id. at 1264-65. Mr. Tooch characterized Karen Fuller's letter of July 12, 2002 as saying that CMS "didn't really mean what we [CMS] said in our April 3 letter, and it was just a proposed letter." Id. at 1265. Mr. Tooch opined that CMS realized it had erred by not granting a hearing in 60 days and was "trying to buy themselves another additional 60-day period of time to prepare the hearing." Id. Mr. Tooch testified that, after Petitioners received the July 12 CMS letter, he recommended to Petitioners' principals that they file an action in federal district court for injunctive relief. Id. Mr. Tooch testified that, when he drafted the complaint for the injunction action in the federal district court, he believed that Petitioners had completely stopped testing, although he specified that that was an assumption based on the few employees he saw during a visit. Id. at 1266. He asserted that there was no "deliberate attempt" to mislead either the district court or CMS, asserting that whether or not the laboratory had ceased testing "wasn't even an issue." Id. Mr. Tooch testified that he learned later that his assumption was incorrect. Id. at 1266-67. Mr. Tooch asserted that because it was 14 months after the survey that CMS notified Petitioners that there was immediate jeopardy, "that at least the government didn't think it was immediate." Id. at 1267. He testified that whether or not the laboratory was shut was not an issue in his discussions with Mr. Stein and the U.S. Attorney's office. Id. at 1268. He recalled a conference call to discuss settlement terms and that the issue of whether or not the laboratory had stopped testing was not raised. Id. at 1269-70; 1287. He asserted that, if the question had been raised, he would have remembered because it would seem ludicrous for CMS to worry about whether the laboratory had shut down when CMS was going to authorize Petitioners to immediately resume testing. Id. at 1269. His understanding of the intent of the settlement was that "the lab would get its clear certificate retroactive; that the slate would be wiped clean with respect to the prior survey; and that CMS would come in and do a survey before October, 2002 . . . ." Id. at 1269-70. He never had the impression that CMS was relying upon the fact that the laboratory had shut down. Id. at 1270. He believed that, under the settlement, CMS would not look back at the 2001 survey or review testing done prior to July 2002. Id. at 1270-71.

In response to my questioning, Mr. Tooch testified that, soon after he filed the complaint in federal district court, the government called and offered to settle; he specified terms the government agreed to; the settlement was agreed to; the Assistant U.S. Attorney drafted a stipulation to remove the lawsuit from the court calendar which he signed. Tr. 1278-79. He specified that most of his dealing was with Mr. Stein rather than with the Assistant U.S. Attorney. Id. at 1279. Mr. Tooch testified that the laboratory believed, based upon the April 3 CMS letter (CMS Ex. 5), that it had to cease testing on April 8, 2002. Id. at 1281. Mr. Tooch testified on cross-examination that the letter which embodied the terms of the settlement between Petitioners and CMS was the letter he drafted dated July 18, 2002, and that the letter from Ms. Fuller at CMS dated July 19 (CMS Ex. 7) was the letter required by the terms of the settlement agreement. Mr. Tooch testified that there was no time to draft a full settlement agreement, and, in a telephone conversation with Mr. Stein, it was agreed that Mr. Tooch would draft a letter that set forth the settlement terms which he then sent to Mr. Stein by facsimile. After receiving Mr. Tooch's letter, Mr. Stein suggested one correction and also sent Mr. Tooch a draft of CMS's July 19, 2002 letter for approval. Id. at 1290. The email from Mr. Stein to Mr. Tooch, dated July 19, 2002, was admitted as P. Ex. 41. Id. at 1295-98.

Based upon all the evidence, I conclude that there was, in fact, an agreement between CMS and Petitioners in the nature of a compromise and settlement of Petitioners' suit for injunctive relief in federal district court.

There can be no question that public policy favors the resolution of controversies through compromise and settlement rather than through litigation. It is accepted that the courts seek to uphold and enforce compromise agreements so long as they are fairly made and do not violate law or public policy. 15A Am. Jur. 2d Compromise and Settlement � 5 (2d ed. 2000). A valid compromise and settlement is final, conclusive, and binding upon the parties and those who accept the benefit of the bargain. Id. � 38. The fact that a federal party is involved may raise the question of whether state or federal law controls interpretation of the settlement agreement, but I have found nothing to indicate that there is any significant difference in the potentially applicable principles of federal or California law.

A compromise or settlement agreement is a contract, and, to be enforceable, there must be a definite offer and acceptance, there must be consideration supporting the contract, the parties must have both the capacity and authority to agree to bind themselves and/or principals, and there must be mutual assent of the parties to the "essential terms" of the agreement. 15A Am. Jur. 2d Compromise and Settlement � 10 (2d ed. 2000). Courts look to the "objectively manifested intentions" of the parties when determining whether or not a settlement agreement has been reached. Id. � 13. "A valid compromise and settlement operates as a merger of, and bars all right to recover on, the antecedent claim or right of action included therein." Id. � 36.

Because a compromise and settlement agreement is a contract, its construction and enforcement are governed by contract principles, subject to judicial interpretation in light of the language of the parties and the circumstances surrounding the making. 15A Am. Jur. 2d Compromise and Settlement � 32 (2d ed. 2000). If it is alleged that there is an ambiguity in the making or formation of the settlement agreement or during its implementation, a court will generally attempt to discern and implement the intent of the parties at the time the agreement was made. Ambiguity is generally found to exist "when language is reasonably capable of being understood in more than one sense" and if there is no ambiguity, "the parties' intent in executing a compromise is discerned from the settlement language alone." Id. � 35. The burden of proof as to the terms of a settlement is generally upon the party who seeks to rely upon the compromise and the party must prove the essential elements of the compromise by clear and convincing evidence. Id. � 57. The parol evidence rule generally applies to prevent evidence extrinsic to the contract documents being used to add or change terms. Id. � 59; 22 Charles Alan Wright & Kenneth W. Graham, Jr., Federal Practice and Procedure, Evidence � 5200 (1978).

In the case before me, Petitioners filed a suit in federal district court seeking to prevent CMS from taking action to prevent Petitioners from continuing to function as a laboratory testing human specimens. There is no dispute that both parties wished to settle the federal district court suit. There is no dispute that a negotiation was initiated and CMS participated in the discussion. There is no dispute that Mr. Tooch sent a letter dated July 18, 2002, to Mr. Chittenden, an Assistant U.S. Attorney, and to Joseph Stein and Brenda Kohn, counsel for CMS. P. Ex. 28 at 4, 6-7. The letter represents on its face that its purpose was to confirm the telephone conversation which occurred on that day in which the parties had agreed to settle the federal district court action. The letter then lists a number of terms and a procedure to be followed to "accomplish" the agreement. Id. at 4 and 6. Mr. Tooch ended his letter by inviting CMS counsel to contact him immediately if his letter omitted anything. Id. at 7. Mr. Stein did contact Mr. Tooch by email on July 19, 2002, indicating that the last line on page 2 of the July 18, 2002 letter (P. Ex. 28, at 6) should read "CID," rather than "CMS," "will then dismiss the action." P. Ex. 41, at 1. Mr. Stein also advised Mr. Tooch that his letter did not reflect the parties' agreement to bear their own attorney fees and costs. Mr. Stein attached a draft notice from CMS to Petitioners, which Mr. Stein indicates is attached as the parties "discussed and agreed." Mr. Stein requested that Mr. Tooch get back to him to confirm that the draft was consistent with the parties' agreement. Id. There is no evidence that Mr. Tooch commented to Mr. Stein about the draft.

The evidence is clear that there was an offer of settlement terms as set forth in Mr. Tooch's letter of July 18, 2002. Mr. Stein, counsel for CMS, did not object to those terms except to note a typographical error and to remind Mr. Tooch of the term that the parties would bear their own attorney fees and costs. On July 19, 2002, Mr. Stein sent Mr. Tooch a draft of the CMS letter which was agreed by the parties as part of CMS's performance, i.e., "a draft notice granting CID's request to reopen and revise." P. Ex. 41. Mr. Stein invited Mr. Tooch to "confirm that the draft is consistent with our agreement." Id. Thus, it appears that Mr. Stein's email and attached draft did not constitute an attempt to counteroffer, but rather, the email and draft were submitted by Mr. Stein to Mr. Tooch as part of the procedure specified in Mr. Tooch's letter of July 18. The consideration required for a valid contract is recited in Mr. Tooch's letter as dismissal of Petitioners' federal suit in consideration for CMS issuing Petitioners a CLIA certificate retroactive to October 2000 and effective through October 2002. Mr. Tooch asserts in his July 18 letter that the CLIA certificate for the period October 2000 through October 2002 will allow Petitioners to seek reimbursement from Medicare for claims during that period and permit Petitioners to reopen and perform laboratory testing. Mr. Tooch's letter also recites as consideration from CMS that CMS will "dismiss all sanctions or proposed sanctions set forth in Karen Fuller's April 3, 2002, letter . . . ." P. Ex. 28, at 4 and 6. Neither Mr. Tooch's letter of July 18 nor Ms. Fuller's letter of July 19, 2002 recited as consideration that Petitioners ceased testing April 8, 2002.

There is no assertion and no evidence that either Petitioners or Ms. Fuller lacked capacity or authority to agree to this compromise. The essential terms of this compromise agreement are reflected in the offer and the acceptance documents, in this case, Mr. Tooch's July 18 letter and Ms. Fuller's letter to Petitioners dated July 19, 2002. Mutual assent to the essential terms of the agreement is indicated by counsel for Petitioners' signature on the letter of July 18, 2002, the subsequent dismissal of Petitioners' federal suit, and Mr. Stein's email and Ms. Fuller's signature on her letter of July 19, 2002.

Following are the terms of the compromise agreement as reflected in the July 18, 2002 Tooch letter and the July 19, 2002 Fuller letter:

�Proposed by Petitioners: CMS will issue Petitioners a CLIA certificate retroactive to October 2000 and valid through October 2002. P. Ex. 28, at 4.

�Agreed to by Ms. Fuller: CMS will issue a CLIA certificate effective for the period October 31, 2000 through October 30, 2002, subject only to Petitioners paying the bill for the certificate. CMS Ex. 7, at 1-2. There is no dispute that CMS issued the CLIA certificate.

�Proposed by Petitioners: Petitioners, with the retroactive issuance of the CLIA certificate, will be permitted to seek reimbursement from Medicare for claims during the period October 2000 through October 2002. P. Ex. 28, at 6.

�Agreed to and performed by Ms. Fuller: CMS reopened and revised its determinations reflected in its April 3, 2002 letter and rescinded the proposed sanctions against Petitioners with the effect that Petitioners could seek reimbursement for Medicare claims for services performed on or after October 31, 2000, and CMS agreed to notify the state Medicaid agency of its decision. CMS Ex. 7, at 1.

�Proposed by Petitioners: Petitioners will be permitted to reopen and begin testing with the retroactive CLIA certificate. P. Ex. 28, at 6.

�Agreed to and performed by Ms. Fuller: Ms. Fuller's letter specified that Petitioners were permitted to immediately resume testing. CMS Ex. 7, at 1.

�Proposed by Petitioners: Prior to expiration of Petitioners' CLIA certificate in October 2002, CID was to be surveyed for purposes of recertification, and the survey would only cover the period July 19, 2002 through October 2002, subject to Petitioners paying the appropriate fees. P. Ex. 28, at 6.

�Agreed to by Ms. Fuller: CMS specified that Petitioners would be sent a bill for a recertification survey to be conducted prior to October 30, 2002. CMS also specified that Petitioners will be required:

at the time of this [the recertification] survey to demonstrate full compliance with the certificate requirements and performance standards of CLIA. The survey will determine whether the laboratory is currently in compliance with all CLIA requirements. The survey sample will be drawn from patient specimens received by the laboratory on or after July 19, 2002. CMS Ex. 7, at 2.

There is no dispute that CMS did not conduct the recertification survey in October 2002 as Ms. Fuller agreed. The recertification survey was conducted in December 2002. Petitioners have not, however, argued that the settlement agreement was breached by CMS or that any remedy is appropriate on that basis.

This review of the essential terms of the settlement reflects no significant difference between what Mr. Tooch offered in his July 18 letter and the terms agreed to by Ms. Fuller in her letter of July 19, 2002. Mr. Tooch's letter also included terms as to the procedure to be followed to effectuate the agreement, but there is no dispute that those terms were fulfilled. ⁽¹⁸⁾ The foregoing review also shows that the settlement agreement was fully performed with the exception of the breach related to the date of the recertification survey, but Petitioners have sought no remedy on that ground. This settlement or compromise agreement was fully performed. Petitioners received the benefit of the bargain they negotiated. CMS also received the benefit of the bargain it negotiated to the extent that Petitioners' federal district court suit was ultimately dismissed.

Petitioners argued in their motion for summary judgment filed August 29, 2003, inter alia, that CMS should be barred from using deficiencies cited during the October 2001 survey as the basis for a CMP in the proceedings before me. Although Petitioners did not specifically use the phrase, the notion is that the alleged deficiencies from the October 2001 survey and sanctions proposed related to that survey in the CMS letter of April 8, 2002, constitute CMS's antecedent claim which led to Petitioners' federal district court action, which CMS sought to resolve through the settlement. The general rule is that "[a] valid compromise and settlement operates as a merger of, and bars all right to recover on, the antecedent claim or right of action included therein." 15A Am. Jur. 2d Compromise and Settlement � 36 (2d ed. 2000). CMS takes the position in pleadings and at hearing, that the terms of the compromise and settlement did not specify that CMS could not subsequently allege that deficiencies cited in the October 2001 survey were not corrected by the December 2002 survey, ⁽¹⁹⁾ thus providing a basis for the imposition of a CMP for failure to correct the deficiencies within 12 months. If CMS's approach is accepted, no party could confidently settle a matter with CMS as no one could be confident that they actually resolved all claims CMS might assert at some future point. Public policy favors resolving cases by compromise and settlement, and approving CMS's approach would thus be contrary to public policy.

Further, the plain language of a contract of settlement controls and there is no language in this settlement that CMS reserved any claims related to the October 2001 survey. Even the language of Ms. Fuller's letter of July 19, 2002, evinces the intent that the October 2001 survey was no longer a basis for remedies against Petitioners: "proposed sanctions against CID's CLIA certificate have been rescinded," "we have decided not to impose the proposed sanctions," "[y]ou will be required at the time of this [the recertification] survey to demonstrate full compliance," "survey will determine whether the laboratory is currently in compliance," and "survey sample will be drawn from patient specimens received . . . on or after July 19, 2002." CMS Ex. 7, at 1-2. CMS is correct that Ms. Fuller's letter does not specifically say that CMS would not subsequently seek to impose sanctions based upon the October 2001 survey; however, the letter also fails to indicate that CMS reserved the right to proceed in any fashion based upon the October 2001 survey. The fair construction of the compromise and settlement as reflected in the Tooch and Fuller letters is that CMS waived any right to proceed based upon the October 2001 survey, and that interpretation is consistent with encouraging public confidence that CMS is dealing fairly and openly in settlement agreements rather than trying to reserve possible claims sub silentio.

CMS also argues that the settlement agreement should be voided because Petitioners misrepresented that the laboratory ceased testing April 8, 2002. CMS does not specifically argue that this constituted a failure of consideration invalidating the contract formation. In fact, this argument would be troublesome considering that the letters that document the settlement agreement make no mention that the representation that Petitioners ceased testing on April 8, 2002, was consideration for CMS to enter the settlement. The failure of CMS to recite specifically that cessation of testing was a factor in agreeing to reopen and revise its prior sanctions decision is a significant omission. It would have been simple enough for Ms. Fuller's letter to indicate that she considered that Petitioners had represented that the laboratory had ceased testing and that she agreed to reopen and revise at least partly on that basis. This is not a case where the parties failed to make any recitation of what constituted the consideration necessary for a contract. But, the only consideration recited is that Petitioners would dismiss the federal lawsuit in exchange for CMS, in short, allowing Petitioners to proceed with their business.

CMS essentially argues that due to Petitioners' misrepresentation that the laboratory ceased testing on April 8, 2002, there was a material mistake of fact and that CMS should not be bound by the settlement for that reason. The primary objective in construing the terms of a settlement agreement is to effectuate the intent of the parties and, absent fraud or genuine mutual mistake, a settlement agreement will be upheld and enforced according to its terms. 15A Am. Jur. 2d Compromise and Settlement � 34 (2d ed. 2000). A mistake as to facts is not generally sufficient grounds to invalidate a compromise agreement where the parties assumed the risk of the mistake when making the compromise. Id. � 45. In order to void a settlement agreement due to a misrepresentation or omission in settlement negotiations, the party seeking to void the agreement must have been "reasonable" in its reliance upon the misrepresentation or omission. Id. � 39. In order to void a settlement contract for fraud, there are specific generally-accepted elements that must be shown: (1) a representation is made as a statement of fact; (2) the representation is not just inaccurate but must be untrue; (3) the representation is known to be untrue by the party that made it or it was made recklessly; (4) the representation was designed to deceive and cause the other party to act; and (5) the misrepresentation must be material, i.e., the other party must act upon the misrepresentation to his injury or damage and the other party would not have agreed to the compromise but for the misrepresentation. Id. � 41.

The misrepresentation that CMS points to was made in the documents filed in the federal district court by Petitioners. P. Exs. 29-30; CMS Ex. 48. In Petitioners' "Complaint for Violation of 42 U.S.C. � 263a, Violation of Due Process, Mandamus and Injunctive Relief " (Petitioners' complaint), counsel for Petitioners asserts in paragraph 43: "As ordered by CMS, CID ceased all laboratory testing on April 8, 2002, and laid off all of its employees." P. Ex. 29, at 7. However, Adolfo Chirico, an owner of CID, states in paragraph 16 of his declaration filed in support of the complaint, that "[a]s ordered by CMS, CID began to cease all Laboratory testing on April 8, 2002." P. Ex. 30, at 5. In its application for a TRO, Petitioners asserted that "[a]s ordered by CMS, CID began shutting down its laboratory testing on April 8, 2002, and laid off all of its employees." CMS Ex. 48, at 7. Mr. Stein, counsel for CMS, testified that he noted the inconsistency and asked Mr. Tooch about it. Ms. Fuller testified that she acted believing that Petitioners had stopped testing April 8, 2002, and that fact was important to her because she believed that reflected that immediate jeopardy had been abated. Tr. 377-82. Mr. Tooch does not deny that the representation in the complaint that Petitioners stopped testing April 8, 2002, was false, but urges that it was based upon his faulty assumption and not made in a deliberate attempt to mislead either the district court or CMS. Id. at 1266-67. Mr. Tooch testified that he did not remember being asked during a conference call to confirm that Petitioners ceased testing April 8, 2002, and he testified that he did not believe that it was important to CMS in the settlement whether or not Petitioners had ceased testing. Id. at 1268-70.

I will assume for the sake of this discussion that Ms. Fuller approved and signed the letter of July 19, 2002, with the mistaken belief that Petitioners had ceased testing on April 8, 2002. Even though Ms. Fuller agreed to the settlement with the mistaken belief that the laboratory had ceased testing, the evidence is not sufficient to show that the misrepresentation that caused the mistaken belief was made with intent to deceive and cause Ms. Fuller to agree to the settlement. Thus, it would not be appropriate to set aside the settlement based upon fraud. Furthermore, if Ms. Fuller acted in reliance upon the misrepresentation that the laboratory had ceased testing, I find that that reliance was not reasonable. The misrepresentation occurred in the complaint and there were two other documents filed in the district court about the same time ⁽²⁰⁾ - the application for TRO and Mr. Chirico's declaration, which, while not contradictory, certainly raised a question about the accuracy of the representation that the laboratory had ceased testing. Indeed, Mr. Stein, Ms. Fuller's counsel, testified that he noted the inconsistency and inquired of Mr. Tooch. Furthermore, CMS previously alleged, in its notice of proposed sanctions letter of April 3, 2002, that Petitioners were guilty of a different instance of misrepresentation, indicating that CMS was already suspicious of Petitioner. CMS should have been acting cautiously given its prior suspicion and the apparent inconsistency in Petitioners' federal district court pleadings. However, Ms. Fuller acted despite the apparent inconsistency. Ms. Fuller testified that she wanted to end Petitioners' lawsuit against the government to avoid risk to the government. Tr. 379-81. Ms. Fuller and CMS got what was bargained for and that was the end of Petitioners' federal district court action. Thus, strictly from the perspective of enforcing a compromise and settlement, I conclude that there are not grounds to set aside the compromise and settlement reflected in the letters of Mr. Tooch and Ms. Fuller. Further, I conclude that all claims of CMS based upon the survey of October 2001 are merged in the settlement, and further action on that survey, including the imposition of a CMP, is barred.

3. The misrepresentation of Petitioners' counsel, attributable to Petitioners, is a sufficient basis for the revocation of Petitioners' CLIA certificate.

I have concluded that Petitioners' misrepresentation about ceasing testing was not grounds to void the settlement agreement related to the October 2001 survey and Petitioners' federal district court lawsuit against CMS. Nevertheless, Petitioners' misrepresentation is a basis for revocation of its CLIA certificate.

There is no dispute that a misrepresentation occurred. The misrepresentation began with Petitioners' filings in federal district court. ⁽²¹⁾ In Petitioners' complaint, counsel for Petitioners asserts in paragraph 43: "As ordered by CMS, CID ceased all laboratory testing on April 8, 2002, and laid off all of its employees." P. Ex. 29, at 7. In its application for a TRO, Petitioners asserted that "[a]s ordered by CMS, CID began shutting down its laboratory testing on April 8, 2002, and laid off all of its employees." CMS Ex. 48, at 7. Mr. Tooch does not deny that the representation in the complaint that Petitioners stopped testing April 8, 2002, was false. Mr. Tooch urges that the false representation was based upon his faulty assumption drawn from his observations at the laboratory and not made in a deliberate attempt to mislead either the district court or CMS. Tr. 1266.

In fact, while CID did curtail much of its testing sometime on and after April 8, 2002, Petitioners continued to do microbiology testing into July 2002. In their motion for summary judgment, Petitioners admit that not all testing ceased April 8, 2002; Petitioners assert that Petitioners were within their rights to continue testing; and admit that microbiology testing continued during May, June, and July 2002. Petitioners' Motion for Summary Judgment at 5, 12-13. In their post-hearing reply brief, Petitioners concede that CID did continue to perform microbiology testing after April 8, 2002. P. Reply at 4. Petitioners point to the fact that Adolfo Chirico, an owner of Petitioners, states in paragraph 16 of his declaration filed in support of the complaint and TRO, that "[a]s ordered by CMS, CID began to cease all Laboratory testing on April 8, 2002." P. Ex. 30, at 5. In their motion for summary judgment, Petitioners argue that Mr. Chirico's statement was not a misrepresentation, because Petitioners "did begin to cease testing as of April 8, 2002 and, with the exception of microbiology, a small portion of their operation, had completely finished all testing within a few weeks after that date." Petitioners' Motion for Summary Judgment at 13. Whether or not Mr. Chirico's statement was a misrepresentation depends upon how one construes the statement in his declaration that "CID began to cease all Laboratory testing (emphasis added)." The evidence suggests that Petitioners did not begin to cease microbiology testing on April 8, 2002; thus, the laboratory did not begin to cease "all" testing as Mr. Chirico asserted.

Mr. Stein, counsel for CMS, testified that he noted the inconsistency in Petitioners' federal court filings and asked Mr. Tooch about it during a telephone conversation. Mr. Stein testified that he recalled that Mr. Tooch told him that the laboratory did stop testing April 8, 2002. Tr. 168-70. ⁽²²⁾ Mr. Stein is more specific in his declaration in which he asserts that during a telephone conversation involving Mr. Tooch on July 18, 2002, "Mr. Tooch was asked directly to clarify whether CID had, in fact, ceased testing on April 8, 2002 . . . . [he] confirmed unequivocally that the laboratory had indeed ceased testing on April 8, 2002." CMS Ex. 47, at 2-3. Mr. Prodan testified that he recalled sitting in on a teleconference during which Mr. Tooch mentioned that the laboratory had stopped testing. Tr. 98-99. Petitioners assert in their post-hearing brief:

Although CMS witnesses were insistent that Mr. Tooch had made these statements, they could not pinpoint the exact conversation when the statements were made or who specifically had raised this issue with Mr. Tooch. (TR 140-42, 175) Their statements are contradicted by Mr. Tooch, who testified that he does not remember discussing closure of the laboratory as a point of discussion in the negotiations regarding settlement of the federal court lawsuit. (TR 1269)

P. Brief at 7 n.4. Mr. Stein and Mr. Prodan were not clear in their testimony as to exactly when Mr. Tooch stated or made the representation that Petitioners had ceased testing on April 8, 2002. However, Mr. Stein and Mr. Prodan were certain that Mr. Tooch made the representation or statement that Petitioners had ceased all testing during a conference call. It is clear that that conference call occurred sometime between Petitioners' filing its federal district court lawsuit on July 15, 2002 and July 18, 2002, when Mr. Tooch sent his letter setting forth settlement terms. Who raised the issue with Mr. Tooch is not important for this discussion. The weight of the evidence is that, during settlement negotiations, Mr. Tooch continued the misrepresentation that the laboratory had ceased testing on April 8, 2002.

CMS asserts that the undisputed misrepresentation by Mr. Tooch is an independent basis for the termination of Petitioners' CLIA certificate. CLIA is clear that the Secretary may suspend and revoke a laboratory's CLIA certificate if, after providing the owner or operator an opportunity for hearing, the Secretary concludes that the "owner or operator or any employee . . . has been guilty of misrepresentation in obtaining the certificate." 42 U.S.C. � 263a(i)(1)(A). The Secretary has delegated authority to CMS pursuant to 42 C.F.R. � 493.1840(a)(1), which provides that "CMS may initiate adverse action to suspend, limit or revoke any CLIA certificate if CMS finds that a laboratory's owner or operator or one of its employees has . . . [b]een guilty of misrepresentation in obtaining a CLIA certificate."

Petitioners argue in their post-hearing brief that they found no legal precedent or regulatory history that gives meaning to 42 C.F.R. � 493.1840(a)(1). P. Brief at 6. I concur that there is no binding legal precedent, and neither the legislative history of the statute nor that of the regulation purports to define the terms used in the statute or the regulation. However, a fundamental rule of statutory and regulatory construction is that the plain meaning of the words used in a statute or regulation controls, and there is no need to resort to legislative history unless the words are ambiguous. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984) (if the intent of Congress is clear, the agency and courts must give effect to the unambiguously expressed intent of Congress); Barnhart v. Walton, 535 U.S. 212, 217-18 (2002); see generally, 2A Norman J. Singer, Statutes and Statutory Construction, � 46.01 (6^th ed. 2000).

Petitioners point to no ambiguity in the words and phrase "guilty of misrepresentation" that would provoke one to look beyond the plain meaning of those words. ALJ Montano considered the language of 42 C.F.R. � 493.1840(a)(1), which mirrors the statutory language contained in 42 U.S.C. � 263a(i)(1)(A), in his decision in Carlos A. Cervera, M.D., DAB CR939 (2002). ALJ Montano determined that it was indeed correct to give the word "misrepresentation" its common meaning and that word does not imply an element of specific intent. Cervera, at 6-7. Black's Law Dictionary provides several definitions of the words "guilty" and "misrepresentation." "Guilty," when used as an adjective, as it is in the statute, means that one committed or is responsible for a crime or a civil wrong. Black's Law Dictionary 727 (8^th ed. 2004). Misrepresentation is "[t]he act of making a false or misleading assertion about something" and may be by words or conduct. Misrepresentation is further defined as "an assertion that does not accord with the facts." Id. at 1022. Separate definitions are provided for phrases such as "fraudulent misrepresentation," "innocent misrepresentation," "material misrepresentation," and "negligent misrepresentation," all of which include an element of intent of either the party that made the misrepresentation or the party that received it.

I, as did ALJ Montano, conclude that the word "misrepresentation" includes no element of intent. Congress did not state that the Secretary could terminate a CLIA certificate only if a misrepresentation was found to be fraudulent or material. Further, Congress did not provide that a misrepresentation must be excused if it was innocent or negligent. The plain meaning of the statute is that any misrepresentation in obtaining a CLIA certificate is sufficient grounds for the Secretary to revoke a CLIA certificate, even if such misrepresentation was negligent or innocent. While this strict construction may seem to have potentially harsh results, it is entirely consistent with Congress' stated purpose in enacting and amending CLIA, i.e., to protect the public. See H.R. Rep. No. 100-899, at 8, 18 (1988), reprinted in 1988 U.S.C.C.A.N. 3828, 3839. Given the foregoing interpretation of the statutory language, even if Mr. Tooch's misrepresentation was innocent or, as he suggests, negligent, that is no defense. Further, because the statute does not require a material misrepresentation, whether or not CMS actually acted based upon the misrepresentation, and whether or not it was reasonable for CMS to act relying upon the misrepresentation, is irrelevant.

Petitioners urge several theories for why they should not suffer consequences as a result of Mr. Tooch's misrepresentation.

Petitioners argue that Mr. Tooch was not an owner, operator, or employee of the laboratory. Petitioners advocate a strict construction of the regulatory provision at 42 C.F.R. � 493.1840(a)(1), which mirrors the statutory language at 42 U.S.C. � 263a(i)(1)(A), and a finding that because Mr. Tooch was not an owner, operator, or employee, his misrepresentation cannot be grounds for revocation of Petitioners' CLIA certificate. Petitioners further argue that if Mr. Tooch's misrepresentation was attributable to his client, "his client . . . was the corporate entity." P. Brief at 7. Petitioners acknowledge that Mr. Tooch was "CID's legal representative" in their post- hearing reply brief at page 5. Mr. Tooch also signed the complaint and application for TRO in the federal district court as attorney for plaintiff, Clinical Immuno Diagnostics Laboratory, Inc. P. Ex. 29, at 10; CMS Ex. 48, at 2. Petitioners' Motion for Summary Judgment states:

Petitioners acknowledge that the pleadings filed by their counsel stated that the laboratory had ceased all testing as of April 8, 2002. See Complaint, Pet. Exh. 29, � 43. Petitioners further acknowledge that this was not completely accurate, as all testing did not cease as of that date.

Petitioner's Motion for Summary Judgment at 12.

According to the introductory paragraph on page 1 of the motion, Petitioners are CID, Jerry Pikover, Natalia Pikover, Adolfo Chirico, and Norvelle A. Harris, M.D. Petitioners have previously argued that the CLIA certificate was actually owned by the corporation, hoping to hide behind the corporate structure. However, Petitioners, by their voluntary participation in the CLIA program, are bound by the definitions of owner and operator contained in the Secretary's regulations at 42 C.F.R. � 493.2. Those definitions create the presumption that Jerry Pikover, Natalia Pikover, Adolfo Chirico, and Norvelle A. Harris, M.D. (as laboratory director) were owners or operators within the meaning of the regulations, and Petitioners have not rebutted that presumption. It is not necessary to determine whether Mr. Tooch had an individual attorney-client relationship with the whole list or just the corporate entity. Mr. Tooch clearly had an attorney-client relationship with the laboratory on whose behalf he filed documents in the federal district court and negotiated with CMS, and his relationship with the laboratory extended to all the owners and operators absent a showing to the contrary. It verges on frivolous for Petitioners to argue the contrary. It is well accepted that whatever an attorney does in the progress of a cause is considered as if done by the party and is binding upon the party even if the attorney was guilty of gross negligence. 7A C.J.S. Attorney & Client � 221 (2004). The federal courts have recognized for some time that, under California law, a client is bound by the acts of his or her attorney so long as the attorney had the actual or apparent authority to bind him. See e.g., Acton v. Merle Norman Cosmetics, 163 F.3d 605 (Table) (unpub.), 1998 WL 658816 (9th Cir. 1998); Mallott & Peterson v. Director, Office of Workers' Compensation Programs, 98 F.3d 1170, 1173 n.2 (9^th Cir. 1996). Accordingly, I conclude that Mr. Tooch's misrepresentations are attributable to the laboratory, its owners, and its operators. ⁽²³⁾

Petitioners also argue that Mr. Tooch's misrepresentation should not be considered adequate grounds for revoking Petitioners' CLIA certificate because the misrepresentation was not made in the course of obtaining a CLIA certificate. Petitioners argue that they were merely seeking an extension of an existing certificate. P. Brief at 7. Petitioners' characterization is at odds with what Mr. Tooch demanded of CMS in his letter of July 18, 2002. Mr. Tooch specifically demanded that CMS issue Petitioners a CLIA certificate "retroactive to October, 2000 . . . valid through October, 2002 . . . ." P. Ex. 28, at 4. Petitioners' characterization is also inconsistent with what CMS did, as reflected by Ms. Fuller's letter of July 19, 2002, which states:

Our April 3, 2002 letter explained that CID's CLIA certificate had expired on October 30, 2000, but that we were administratively extending the certificate's expiration date pending a final determination on the proposed sanctions. Since we have decided not to impose the proposed sanctions, we will take action to cause the CLIA data system to generate a routine bill for a new CLIA certificate effective for the period October 31, 2000 through October 30, 2002. Once your payment of this certificate bill is received, a new valid CLIA certificate will be mailed to you.

CMS Ex. 7, at 1-2.

The evidence shows, contrary to Petitioners' argument, that no mere extension of an existing CLIA certificate was involved. Petitioners' CLIA certificate expired in October 2000, but it was administratively extended by CMS while CMS pursued an enforcement action against Petitioners. Pursuant to the compromise and settlement, which I have upheld, the CMS enforcement action ended and so did the administrative extension of Petitioners' prior CLIA certificate. Petitioners negotiated for and received a new CLIA certificate, valid for the period October 31, 2000 through October 30, 2002. Pursuant to 42 C.F.R. � 493.49(d), two years is the maximum term for a certificate of compliance.

Finally, Petitioners want to focus upon CMS's motives, arguing that CMS never divulged the true reason for settling. The implication is that intent or knowledge of CMS officials is important and that the misrepresentation was not the basis for the CMS decision to settle or that it was not material to the CMS decision to issue Petitioners a CLIA certificate. P. Brief at 7-8; P. Reply at 4-5. I have already noted that the statute does not require a "material misrepresentation." Therefore, whether or not Ms. Fuller relied upon the misrepresentation by Petitioners or whether or not her reliance was reasonable are not relevant issues. I note, however, that Congress has been very clear that the Secretary may only issue or renew a CLIA certificate where the Secretary is provided reasonable assurances that a laboratory will be operated in accordance with CLIA requirements. There is no question that Ms. Fuller, as the Secretary's delegee, authorized the issuance of the CLIA certificate Petitioners bargained for, for the period October 31, 2000 through October 30, 2002. As a government official discharging her duties, Ms. Fuller could only lawfully issue Petitioners the new CLIA certificate if she believed that the laboratory would be operated in accordance with CLIA requirements as directed by Congress. See 63C Am. Jur. 2d Public Officers and Employees � 258 (2d ed. 1997) (public officer may only make such contracts as authorized by law and must be in accordance with law). Absent evidence to the contrary, the law presumes that a public official such as Ms. Fuller performed her duties properly in accordance with the law. Id. � 403. Accordingly, I will not draw the adverse inference Petitioners request: that, because Ms. Fuller did not, on advice of counsel, disclose all the considerations involved in issuing Petitioners the new CLIA certificate, there was some improper motive or act.

4. There is a basis for the revocation of Petitioners' CLIA certificate, but there is no basis for the imposition of a CMP.

The Secretary may suspend and revoke a laboratory's CLIA certificate, if, after providing the owner or operator an opportunity for hearing, the Secretary concludes that the "owner or operator or any employee . . . has been guilty of misrepresentation in obtaining the certificate." 42 U.S.C. � 263a(i)(1)(A). The preponderance of the evidence supports a conclusion that Petitioners are guilty of misrepresentation in obtaining a CLIA certificate for CID for the period October 31, 2000 through October 30, 2002. Accordingly, there is a basis for the revocation of CID's CLIA certificate.

The March 31, 2003 CMS notice of sanctions indicates at page 7 that the total CMP of $39,000 proposed by CMS is based upon a $3,000 CMP for each of 13 standard-level deficiencies not corrected within a year of the completion of the October 31, 2001 survey. CMS Ex. 2. I have concluded that CMS is bound by its compromise and settlement with Petitioners related to the October 2001 survey and Petitioners' federal lawsuit. The compromise and settlement resolved all issues related to the October 2001 survey, and the findings and conclusions of that survey may not be cited by CMS as a basis for a CMP. Accordingly, there is no basis for the imposition of a CMP in this case.

5. There has been no issue raised by Petitioners as to the identity of responsible owners and operators who are subject to the two-year ban of 42 U.S.C. � 263a(i)(3).

Petitioners in this case are CID, Jerry Pikover, Natalia Pikover, Adolfo Chirico, and Norvelle A. Harris, M.D. First Amendment to Response to Order to Show Cause; Petitioners' Motion for Summary Judgment at 1; Petitioners' Prehearing Brief at 2; P. Brief at 1; P. Reply at 1. A CMS notice dated February 5, 2003, advised the aforementioned addressees that CMS proposed sanctions against CID for deficiencies identified at the December 2002 and October 2001 surveys. CMS Ex. 1. The February 5, 2003 notice was addressed to "Norvelle A. Harris, M.D., Director, Adolfo Chirico, President/Operator, Jerry Pikover, Owner/Operator, Natalia Pikover, Owner/Operator, Arkady Rozemberg, Owner/Operator, Stanley Stein, Owner/Operator, [and] Clinical Immuno-Diagnostics Laboratory, Inc. Id. The March 31, 2003 CMS notice advised the same list of addresses that CMS was imposing sanctions. CMS Ex. 2. The notice advised that owners and operators, including directors, would be prohibited from owning or operating (including directing) another laboratory for at least two years from the date of the revocation of CID's CLIA certificate pursuant to 42 U.S.C. � 263a(i)(3). The notice further advised the addressees of the right to request a hearing by an ALJ. Id. The March 31 notice reflects that copies were mailed by certified mail to each of the addressees, except the laboratory, at other addresses. Id. There has been no allegation that the notice was not received by the addressees. No issue has been raised by Petitioners as to the accuracy of the listing of addressees on the two CMS notices or the correct characterization of their status as owners, operators, or director. Finally, there has been no issue raised as to the applicability of 42 U.S.C. � 263a(i)(3) to the addressees of the two notices.

IV. CONCLUSION

For the foregoing reasons, the CLIA certificate of CID is revoked effective the date of this decision. The CMPs are not approved.

Keith W. Sickendick

Administrative Law Judge

1. Codified as 42 U.S.C. �� 263a, 1302, 1395x(e).

2. All citations are to the 2002 version of the Code of Federal Regulations, which was in effect at the time of the December 2002 on-site survey.

3. I note that Petitioners' First Amendment to Response to Order to Show Cause states:

The current owners of Clinical Immuno-Diagnostics Laboratory are Jerry Pikover and Natalia Pikover, whom [sic] are members of Target Management and Investment, LLC, which is the sole shareholder of Clinical Immuno-Diagnostics Laboratory. The current director is Norvelle Harris, M.D. Mr. Adolfo Chirico is the President of the Clinical Immuno-Diagnostics Laboratory.

First Amendment to Response to Order to Show Cause at 1.

4. It does not appear that there were ever transcript pages 532 through 899. The second volume of the transcript which ends at page number 531 reflects that proceedings were recessed at 5:57 p.m. on April 21, 2004. The third volume reflects at page 904 that proceedings were reconvened at 8:40 a.m. on April 22, 2004. I note that the court reporter specifically certified that the second volume, which is a transcript of proceedings from April 21, 2004, comprised pages 197 through 530. I find no error or prejudice.

Counsel for CMS advised by letter dated July 16, 2004, that a portion of the testimony of CMS's witness Otey was not contained in the transcript. Petitioner's counsel contended in its post-hearing reply brief that there was no basis for CMS's claim. After investigation, I determined that counsel for CMS was correct and ordered that the court reporter correct the transcript and related certification. The court reporter prepared a new volume for the proceedings on April 22, 2004, with a corrected certification. I conclude after review of the certification and transcript that not all testimony of CMS's witness Otey has been transcribed despite the attempted correction by the court reporter. I further conclude that the missing testimony of CMS's witness Otey is irretrievable at this point. Nevertheless, given that the disposition of this case is not dependent in any respect upon the testimony of CMS's witness Otey, I conclude that the missing testimony causes no prejudice to either party and no further remedy is required.

5. Petitioners' opening post-hearing brief and post-hearing reply brief are referred to hereafter as P. Brief and P. Reply, respectively. CMS's opening post-hearing brief and post-hearing reply brief are referred to hereafter as CMS Brief and CMS Reply, respectively.

6. Immediate jeopardy is a situation where immediate corrective action is necessary because the laboratory's noncompliance with one or more condition-level requirements "has already caused, is causing, or is likely to cause, at any time, serious injury or harm, or death, to individuals served by the laboratory or to the health or safety of the general public." Immediate jeopardy means the same as "imminent and serious risk to human health and significant hazard to the public health." 42 C.F.R. � 493.2.

7. This prohibition is a civil disability imposed by Congress rather than a sanction or remedy imposed by the Secretary or CMS under CLIA. Black's Law Dictionary defines "disability" as the "want of legal capability to perform an act" while a "sanction" is "a penalty or punishment provided as a means of enforcing obedience to a law." Black's Law Dictionary 548, 1507 (6 ^th ed. 1968).

8. Section 1846(b)(2)(A) of the Act lists the authorized intermediate sanctions: directed plans of correction; CMPs not to exceed $10,000 per day; payment for costs of onsite monitoring; and suspension of payments due the provider under the Act. These sanctions are referred to as "alternative sanctions" in the regulations. The regulations specify that the phrases "intermediate sanctions" and "alternative sanctions" are synonymous. 42 C.F.R. � 493.2.

9. In my discussion, I have put in boldface the text where I refer to CMS's allegations concerning the deficiencies from the October 2001 survey that are the basis for sanctions. The reader will note that CMS sometimes alleges that both the condition-level and standard-level deficiencies from the October 2001 survey are a basis for remedies and, at other times, asserts only the standard-level deficiencies are the basis.

10. The nine alleged condition-level violations were of the following regulatory provisions: 42 C.F.R. �� 493.801 (Enrollment and Testing of Samples); 493.1101 (Patient Test Management); 493.1201 (General Quality Control); 493.1403 (Laboratory Director-Moderate Complexity); 493.1487 (Testing Personnel-High Complexity); 493.1701 (Quality Assurance); 493.1441 (Laboratory Director-High Complexity); 493.1227 (Bacteriology); and 493.1269 (Immunohematology). CMS Ex. 9, at 4.

11. The survey was completed October 31, 2001; thus, Petitioners' patients and/or the public were allegedly at risk for "serious injury or harm, or death" for more than five months at this point.

12. A practical difficulty with this interpretation is that, in July 2002, it was too late for CMS to cause Petitioners to cease testing activity as of April 8, 2002, unless Petitioners had ceased testing voluntarily around that date. I recognize that CMS may have some incentive to retroactively implement its proposed sanctions to the extent that that may affect Petitioners' entitlement to reimbursement from Medicare or Medicaid. However, it is not necessary to analyze CMS's motives.

13. Congress has provided that in limited cases such as where immediate jeopardy is found, the Secretary may suspend or limit a CLIA certificate before a hearing is held by an ALJ, but "[t]he opportunity for a hearing shall be provided (to the affected laboratory) no later than 60 days from the effective date of the suspension or limitation." 42 U.S.C. � 263a(i)(2)(A).

14. I recognize that there are two sanctions affecting Petitioners' business interest, the plan of correction to cease testing proposed to be effective April 8, 2002, and the suspension proposed to be effective three days later on April 11, 2002. The difference between these two proposed sanctions and whether CMS can even impose a directed plan of correction to cease testing, which seems to have the same practical impact as a suspension but without the due process guaranteed by Congress, are not issues I need to resolve. Because the two proposed sanctions appear so similar and are only separated in time by three days, I use "suspension" as a short form reference for the two sanctions.

15. As of July 12, 2002, immediate jeopardy to Petitioners' patients and/or the public allegedly had been present for more than eight months.

16. The pages of P. Ex. 28 are misnumbered. The exhibit indicates there are a total of seven pages but there is no page numbered 5. The document at P. Ex. 28, pages 4, 6, and 7, is complete despite the fact that there is no page of the exhibit marked as page 5.

17. I find no notice by CMS dated after July 12, 2002, and before July 16, 2002, that indicates that CMS went ahead and imposed sanctions before its July 22, 2002 deadline.

18. The Assistant U.S. Attorney was to file a pleading to remove the TRO from the court docket, CMS prepared a draft notice to Petitioners which was attached to Mr. Stein's email, CMS issued a formal notice, and Petitioners dismissed the federal district suit. It was also specified that Petitioners would send a letter requesting that Ms. Fuller reopen and revise its prior decision, and, while I have no evidence that the letter was actually sent, neither party asserts that as grounds for voiding the settlement agreement. See P. Ex. 28, at 6 for the terms related to the procedure.

19. CMS concedes that the factual basis for the deficiencies cited during the October 2001 survey was different than the factual basis for the deficiencies cited during the December 2002 survey. Tr. 1040-42. Although I specifically invited CMS to brief on this issue ( id. at 1040-43), CMS did not do so in any detail. Resolution of this point is unnecessary given my decision.

20. The complaint was filed on July 15, 2002. P. Ex. 29, at 1. The application for TRO is dated July 16, 2002. CMS Ex. 48, at 2. There is no question that CMS had both documents and supporting declarations at the time Ms. Fuller acted.

21. The complaint is generally misleading to the extent that it represents that CMS summarily suspended and revoked CID's CLIA certificate and then failed to provide Petitioners a hearing within 60 days as required by 42 U.S.C. � 263a(i)(2). In fact, as the evidence already reviewed reveals, CMS had proposed but not imposed any remedies against Petitioners as of July 15, 2002, when the federal district court complaint was filed. Furthermore, 42 U.S.C. � 263a(i)(2) requires that a laboratory be given the "opportunity for a hearing . . . no later than 60 days from the effective date of the suspension or limitation." Arguably, because no suspension or limitation was effected, the 60-day period was never triggered. CMS has never disclosed why it perceived litigation to be a risk sufficient to warrant compromising to end Petitioners' lawsuit, but the focus in analyzing the misrepresentation of Petitioners is upon Petitioners' conduct, not CMS's.

22. On cross-examination, Mr. Stein testified that Mr. Tooch was asked whether Petitioner had ceased testing, but that the query did not come from him. Tr. 175-76. Mr. Stein testified that he couldn't remember who asked Mr. Tooch. Id. at 176.

23. Petitioners suggest, in footnote 6 at page 13 of their motion for summary judgment, that, because there is no requirement in the federal district court to file a "verified" complaint, statements of counsel in pleadings in federal court cannot be attributed to Petitioners. While Petitioners are correct that the federal courts no longer require complaints to be attested to or verified by the client, the federal courts do have Fed. R. Civ. P. 11. Rule 11 of the Federal Rules of Civil Procedure requires that counsel sign any pleading filed in federal court. By his or her signature, counsel certifies that both legal and factual assertions are warranted and have evidentiary support, at least as of the time of filing. Rule 11 clearly allows the federal courts to sanction either the attorney or client for violation of the rule. See 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure: Civil �� 1333, 1334, 1336.2 (3d ed. 2004 ).