Kenneth Zahl v. Douglas J. Harper

Filed February 26, 2002
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 01-1817
KENNETH ZAHL,
Appellant
v.
DOUGLAS J. HARPER, in his official capacity as Senior
Deputy Attorney General of the state of New Jersey and
individually, solely to the extent of exposing his person to
the equitable jurisdiction of this Court; THE NEW
JERSEY DEPARTMENT OF LAW AND PUBLIC SAFETY;
DIVISION OF CONSUMER AFFAIRS; STATE BOARD OF
MEDICAL EXAMINERS; JOHN J. FARMER, in his official
capacity as Attorney General of the State of New Jersey
and individually, solely to the extent of exposing his
person to the equitable jurisdiction of the Court; THE
STATE OF NEW JERSEY
Appeal from the United States District Court
For the District of New Jersey
D.C. No.: 01-cv-01264
District Judge: Honorable Dickinson R. Debevoise
Submitted Under Third Circuit LAR 34.1(a)
January 18, 2002
Before: SCIRICA, ROSENN, Circuit Judges,
and KANE,* District Judge.
(Filed: February 26, 2002)
_________________________________________________________________
* Hon. Yvette Kane, United States District Court for the Middle District
of Pennsylvania, Sitting by Designation.
Robert J. Conroy, Esq.
Kern, Augustine, Conroy &
Schoppmann
1120 Route 22 East
Bridgewater, NJ 08807
Counsel for Appellant
Jeffrey Burstein, Esq.
Office of Attorney General of
New Jersey
Division of Law
124 Halsey Street
P.O. Box 45029
Newark, NJ 07102
Counsel for Appellees

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OPINION OF THE COURT
ROSENN, Circuit Judge:
This appeal, in an action seeking federal injunctive relief
from state disciplinary proceedings against a medical
practitioner, raises important questions concerning the
application of the doctrines of preemption and abstention.
The New Jersey State Attorney General (Attorney General)
instituted disciplinary proceedings against Kenneth Zahl,
M.D. (Zahl), alleging, inter alia, violations of the federal
Medicare statute and regulations. Zahl sought an
injunction in the United States District Court for the
District of New Jersey to restrain the Attorney General from
pursuing adjudication of two counts of the eight-count
administrative Complaint (Complaint) in the pending action
before the New Jersey State Board of Medical Examiners
(Board). Zahl asserts that the two counts he challenges,
involving allegations of Medicare fraud, are preempted by
42 U.S.C. SS 405(g) and (h). Therefore, he contends that the
Board lacks jurisdiction over the proceedings pending
against him. The District Court dismissed the complaint on
grounds of abstention. We affirm.
2
I.
Zahl, a Board-Certified anesthesiologist licensed by the
State of New Jersey to practice medicine and surgery,
founded the Ridgedale Surgery Center in Cedar Knolls, New
Jersey, and became its medical director. The surgery center1
carries Medicare certification. There, Zahl frequently
performed a procedure known as "nerve block," a form of
local anesthesia administered by injection. Unlike general
anesthesia, where the patient is unconscious during
surgery, the anesthesiologist need not be in the patient’s
presence throughout the operation or other medical
procedure. Typically, Zahl would have one patient in the
operating room, undergoing a procedure performed by a
surgeon, while Zahl simultaneously administered nerve
block to another patient. Thus, while administering"nerve
blocks," Zahl would usually treat two patients
simultaneously, administering and monitoring one patient
being prepared for surgery, and monitoring another patient
undergoing surgery. Counts One and Two of the Attorney
General’s Complaint allege improprieties in Zahl’s method
for billing "nerve blocks" under Medicare.
The billing issue involves payments for medical services
under Medicare Part B. Medicare Part B is administered by
the United States Department of Health and Human
Services (HHS). HHS employs non-governmental contractors
called "carriers," who review and pay Medicare claims on its
behalf. For the period relevant to this case through March
1999, Xact Medicare Services (Xact) served as New Jersey’s
Part B carrier. From March 1999 onward, Empire Medicare
Services has been New Jersey’s Part B carrier.

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Medicare uses a system of codes known as "CPT Codes"
(CPT). Each CPT describes a different medical procedure.
Zahl believes that nerve blocks should not be billed on the
basis of time spent, but that the proper billing method is to
charge for each procedure performed. Thus, Zahl billed
separately for each nerve block. In late 1995, Xact
subjected Zahl’s billing method to a "focused review." As a
_________________________________________________________________
1. The Center is a facility where surgery is performed on patients without
the necessity of hospitalization. Patients walk in, receive medical
services, have a brief recovery period, and walk out.
3
result, Zahl was ordered to refund money paid for
approximately 30 nerve blocks and to re-bill the procedures
under a CPT relating to time spent. Zahl complied, but
wrote a letter to Xact stating that he would bill for
overlapping time for each nerve block he performed. Xact
never responded, and Zahl continued to bill for overlapping
time. Eventually, Xact investigated Zahl’s billing method
and, inter alia, made a preliminary finding that he had
improperly billed for overlapping, concurrent time periods.
In August 1999, the Attorney General filed a Complaint
with the Board seeking to suspend Zahl’s license to practice
medicine and surgery in New Jersey. The first two counts
of the Complaint allege that the method Zahl used to bill
"nerve blocks" amounted to Medicare fraud, and thus
violated N.J. Stat. Ann. S 45:1-21(b) and (e). 2 The Attorney
General, believing that there were no genuine issues of
material fact arising from the allegations, moved for a
Board Order granting summary decision. The Board
required Zahl to appear before it to explain why the Board
should not enter an Order granting the Attorney General’s
motion for summary decision. Zahl denied the substantive
charges and the Board denied the motion for summary
judgment. It referred the case to the New Jersey Office of
Administrative Law (OAL) for plenary hearing.
The Attorney General filed a motion with the
Administrative Law Judge (ALJ) for partial summary
decision on, inter alia, Counts One and Two. Zahl filed a
cross-motion to dismiss the counts. Although oral
argument on the motion and cross-motion was held in April
2001, the ALJ has not yet rendered his decision.
_________________________________________________________________
2. The relevant statutory text provides in pertinent part that a board may
suspend or revoke any license issued by it upon proof that the holder of
such license
b. Has engaged in the use or employment of dishonesty, fraud,
deception, misrepresentation, false promise or false pretense;
. . . .

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e. Has engaged in professional or occupational misconduct as may
be determined by the board . . . .
N.J. Stat. Ann. S 45:1-21(b), (e).
4
In March 2001, Zahl filed a Complaint with the United
States District Court seeking an injunction to restrain the
Board from pursuing the administrative prosecution of him
based upon any allegations of violation of the federal
Medicare statute or its regulations. The plaintiff contended
that the federal Government’s enactment of the Medicare
statutes preempted the state action and that pursuant to
42 U.S.C. S 405(h), as made applicable to Medicare claims
by 42 U.S.C. S1395ii, 42 U.S.C. S 405(g) provides the
exclusive jurisdictional grant for judicial review of Medicare
claims. He, therefore, asserts that as a matter of federal
law, the defendants lack jurisdiction to take action against
him or his license to practice medicine until the Secretary
of Health and Human Services has made a determination
that has been reviewed by the federal courts.
The District Court concluded that the New Jersey
Attorney General is not pursuing a claim under Medicare or
challenging a Medicare regulation or practice. The court
rejected Zahl’s contentions that Congress had preempted
the field so as to preclude the state agencies "from
proceeding with their disciplinary proceedings raising
issues under Medicare law." Accordingly, it dismissed the
complaint on the ground of abstention.
II.
On appeal, Zahl argues that the District Court erred by
abstaining. We review the District Court’s decision to
abstain for abuse of discretion. Schall v. Joyce , 885 F.2d
101, 106 (3d Cir. 1989). We exercise plenary review,
however, over the underlying legal determinations of
whether the abstention requirements have been met.
FOCUS v. Allegheny County Court of Common Pleas, 75 F.3d
834, 843 (3d Cir. 1996).
A.
The District Court abstained under principles
promulgated by the United States Supreme Court in
Younger v. Harris, 401 U.S. 37 (1971). In Younger, the
federal District Court had enjoined Younger, the district
attorney of Los Angeles County, from prosecuting Harris
5
under a constitutionally-suspect state statute. Id. The
Supreme Court reversed, finding the injunction "a violation
of the national policy forbidding federal courts[from]
stay[ing] or enjoin[ing] pending state court proceedings
except under special circumstances." Id. at 41.

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Although Younger involved a state court criminal
proceeding, the national policy against enjoining pending
state court proceedings has since been extended to
noncriminal judicial proceedings. E.g., Middlesex County
Ethics Comm. v. Garden State Bar Ass’n, 457 U.S. 423, 432
(1982) ("The policies underlying Younger are fully applicable
to noncriminal judicial proceedings when important state
interests are involved."). Administrative proceedings are
also subject to Younger abstention. E.g. , Id. (abstention
when pending state bar disciplinary proceeding); Williams v.
Red Bank Bd. of Educ., 662 F.2d 1008 (3d Cir. 1981)
(abstention when pending state administrative tenure
proceeding against school teacher).
The United States Supreme Court has laid out a three-
part test for determining whether abstention is appropriate.
Abstention is appropriate when: (1) there is a pending state
judicial proceeding; (2) the proceeding implicates important
state interests; and (3) the state proceeding affords an
adequate opportunity to raise constitutional challenges.
Garden State, 457 U.S. at 432. Even if this test is met,
however, abstention is not appropriate if the plaintiff
establishes that "extraordinary circumstances exist . . .
such that deference to the state proceeding will present a
significant and immediate potential for irreparable harm to
the federal interests asserted." Schall v. Joyce, 885 F.2d
101, 106 (3d Cir. 1989).
Aside from incorrectly asserting that his is not a
constitutional challenge, Zahl does not challenge the
District Court’s holding that the three-part test has been
met. We briefly apply the Garden State test to this case.
The state proceedings are clearly judicial in nature, and
therefore meet the first part of the test. The proceedings are
being conducted before an ALJ pursuant to New Jersey’s
Uniform Enforcement Act (UEA), N.J. Stat. Ann. SS 45:1-14
to 45:1-27, and New Jersey’s Administrative Procedure Act
(APA), N.J. Stat. Ann. SS 52:14B-1 to 52:14B-24. State
6
administrative proceedings such as this have long been
recognized as judicial in nature. E.g., Ohio Civil Rights
Comm’n v. Dayton Christian Sch., Inc., 477 U.S. 619, 627
(1986) (state civil rights commission proceeding judicial in
nature); Garden State, 457 U.S. at 433-34 (bar disciplinary
proceeding judicial in nature). Only proceedings that fail to
"rise to the level of ‘adjudication’ " are considered
inadequate for purposes of abstention. Williams , 662 F.2d
at 1021. Here, the parties are in the midst of an
administrative proceeding conducted pursuant to New
Jersey’s regulatory structure. Zahl has the right to
appellate review by state courts if he wishes to challenge
the final decision of the Board. N.J. Ct. R. 2:2-3(a)(2).
Indisputably, these are judicial proceedings.
The second part of the Garden State test is also met. In
Garden State, the United States Supreme Court recognized

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the extremely important state interest in "maintaining and
assuring the professional conduct of the attorneys it
licenses." 457 U.S. at 434. As the District Court noted in
this case, "[e]qually important to the public as a whole is
regulation of the practice of medicine." (14) Other circuits,
too, have recognized the obvious interest states have in
regulating the practice of medicine. E.g., Doe v. Conn., Dep’t
of Health Servs., 75 F.3d 81, 85 (2d Cir. 1996) (ruling state
"legislative scheme for disciplining doctors serves important
and obvious public health objectives"); Bettencourt v. Bd. of
Registration in Med., 904 F.2d 772, 778 (1st Cir. 1990)
(ruling that enforcing proper standards of medical licensing
"obviously implicate[s] important state interests"). Thus, the
New Jersey disciplinary proceedings implicate important
state interests, particularly during these times of
heightened health concerns.
Finally, we reach the third part of the Garden State test.
Zahl emphasizes that this part of the test is not met
because, "Younger speaks of abstention only in the case of
a collateral Constitutional challenge" and that abstention is
therefore inappropriate here because he "has not raised a
Constitutional challenge to the state’s actions." (Br., 37)
Zahl, however, misapprehends the nature of his challenge.
The gravamen of his Complaint is that the New Jersey
administrative action is preempted by Act of Congress.
7
Preemption is based on the Supremacy Clause of the
United States Constitution.3 Hawkins v. Leslie’s Pool Mart,
Inc., 184 F.3d 244, 247 (1999). Therefore, Zahl’s claim does
indeed raise a constitutional challenge, which draws the
abstention doctrine to the forefront of our consideration.
The third part of the Garden State test is met because
Zahl can assert his federal preemption claim in the state
administrative proceeding. Moreover, he has an automatic
right of appeal to the Appellate Division of the Superior
Court of New Jersey, N.J. Ct. R. 2:2-3(a)(2), which is
capable of reviewing Zahl’s federal claims. This Court has
noted that the third part of the Garden State test "is
satisfied in the context of a state administrative proceeding
when the federal claimant can assert his constitutional
claims during state-court judicial review of the
administrative determination." O’Neill v. Philadelphia, 32
F.3d 785, 792 (3d Cir. 1994). Zahl can assert his
preemption claim in the administrative proceeding itself
and, if necessary, he can have it reviewed by the New
Jersey Appellate Division. Accordingly, the state
proceedings in the instant case meet each of the aspects of
the Garden State test.
B.
Although we conclude that the Garden State abstention
test has been satisfied, our inquiry is not complete.
Abstention still may not be appropriate because Zahl’s
essential argument, though not couched in these terms, is

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that the state proceedings are preempted by federal law,
and this constitutes an extraordinary circumstance
counseling against abstention even if the Garden State test
has been met. Olde Disc. Corp. v. Tupman, 1 F.3d 202, 212
(3d Cir. 1993). In other words, Zahl argues that"the
paramount federal interest in the orderly administration of
the Medicare program outweighs any interest the State of
New Jersey may have in disciplining physicians for alleged
violation of the Medicare laws." (P.B. 18).
_________________________________________________________________
3. The Supremacy Clause provides: "This Constitution, and the Laws of
the United States . . . shall be the supreme Law of the Land . . . ." U.S.
CONST. art. VI, cl. 2.
8
Cases involving preemption challenges under the
Supremacy Clause are often inappropriate vehicles for
abstention. Ky. W. Va. Gas Co. v. Pa. Pub. Util. Comm’n,
791 F.2d 1111, 1115-16 (3d Cir. 1986). Although there is
no absolute prohibition against abstaining whenever the
Supremacy Clause is invoked, Ford Motor Co. v. Ins.
Comm’r, 874 F.2d 926, 934 (3d Cir. 1989), and claims of
federal preemption per se are generally not entitled to more
deference in the abstention calculus than other
constitutional claims, Tupman, 1 F.3d at 214, the presence
of such a claim requires us to balance the state interest
served by abstention against the federal interest asserted to
have usurped the state law. Ford Motor, 874 F.2d at 934.
In conducting this inquiry, we recognize that the notion
of comity, so central to the abstention doctrine,"is not
strained when a federal court cuts off state proceedings
that entrench upon the federal domain." Id. (internal
quotations omitted). Moreover, a determination of the
propriety of abstention does not depend upon whether the
preemption claim will ultimately prevail. Id. at 935 n.12.
The appropriateness of abstention is predicated solely
"upon the significance of the federal interest invoked." Id.
We recognize that New Jersey has a heavy and traditional
interest in regulating the practice of medicine within its
borders. Regulating matters of health is among the historic
police powers of a state. De Buono v. NYSA-ILA Med. &
Clinical Servs. Fund, 520 U.S. 806, 814 (1997). Because
such regulation is primarily a matter of local concern,
" ‘States traditionally have had great latitude under their
police powers to legislate as to the protection of the lives,
limbs, health, comfort, and quiet of all persons.’ " Medtronic,
Inc. v. Lohr, 518 U.S. 470, 475 (1996) (quoting Metro. Life
Ins. Co. v. Massachusetts, 471 U.S. 724, 756 (1985)). New
Jersey recognizes that a license to practice a profession "is
not a basic individual right" and the right to practice
medicine "is granted in the interest of the public." In re Polk
License Revocation, 449 A.2d 7, 17 (N.J. 1982). The state
regulation of the medical profession is in the public
interest; power to establish and enforce health standards
"is a vital part of a state’s police power." Brodie v. State Bd.

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of Med. Exam’rs, 427 A.2d 104, 108 (N.J. Super. Ct. App.
9
Div. 1981)(quoting Barsky v. Bd. of Regents, 347 U.S. 442,
449 (1954)).
Against New Jersey’s exceedingly strong interest in
regulating the practice of medicine in its jurisdiction must
be weighed what Zahl asserts is the federal interest in
having the Secretary of HHS exclusively decide whether
physicians have violated Medicare regulations. In support of
his claim of an overbearing federal interest, Zahl notes that
42 U.S.C. S 405(h) precludes judicial review of claims
arising under the Medicare statute until administrative
remedies have been exhausted. He argues that this
preclusion demonstrates the strong federal interest in
having Medicare claims reviewed by the federal
administrative process. Zahl further notes that"[t]he
[United States] Supreme Court has construed the ‘claim
arising under’ language of section 405(h) broadly to
encompass any claims in which ‘both the standing and the
substantive basis for the presentation’ of the claims is the
Medicare Act." In re Univ. Med. Ctr., 973 F.2d 1065, 1073
(3d Cir. 1992) (quoting Heckler v. Ringer, 466 U.S. 602, 615
(1984) (quoting Weinberger v. Salfi, 422 U.S. 749, 760-61
(1975)). Zahl therefore bravely concludes, without further
analysis, that the Attorney General’s claim in this case
arises under the Medicare Act.
The District Court was not persuaded. It cogently
observed that "[t]he fundamental flaw in[Zahl’s] reasoning
is that the Attorney General is not pursuing a claim under
Medicare or challenging a Medicare regulation or practice."
(11) Although the Attorney General’s disciplinary claim is
based on alleged violations of the Medicare statute and its
regulations, his suit is brought for violations under N.J.
Stat. Ann. S 45:1-17(c),4 and not 42 U.S.C. S 405(h).
Moreover, the provisions of the Medicare Act on which
Zahl relies offer no support for any federal interest in the
Secretary of HHS to enforce Medicare violations. Although
S 1395ff(a) provides that the determination of whether an
_________________________________________________________________
4. The statute provides that the Attorney General, "[a]fter a full
consideration of all relevant facts and the applicable law, may direct the
initiation of any appropriate enforcement action by a professional . . .
licensing board." N.J. STAT. ANN . S 45:1-17(c).
10
individual is entitled to benefits under part A or part B of
this subchapter "shall be made by the Secretary[of HHS],"
42 U.S.C. S 1395ff(a), an objective reading of the statute
reveals that it obviously concerns determinations of
individual entitlements to Medicare. Nothing in the statute
evinces a congressional desire to have the Secretary of HHS

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make exclusive, or even any, determinations relating to
disciplinary concerns of a physician for Medicare violations.
Therefore, we perceive no federal interest in having the
Secretary of HHS exclusively make such determinations.
Zahl relies heavily on Buckman Co. v. Plaintiffs’ Legal
Committee, 531 U.S. 341 (2001), to support his position.
Buckman involved plaintiffs seeking damages under state
tort law for fraud against the Food and Drug
Administration (FDA). Id. at 343. The Supreme Court held
that the state law product liability claim was impliedly
preempted by the Federal Food, Drug, and Cosmetic Act
(FDCA). Id. at 348. The Court stated that"[p]olicing fraud
against federal agencies is hardly a field which the States
have traditionally occupied such as to warrant a
presumption against finding federal pre-emption of a state-
law cause of action." Id. at 347 (citation omitted) (internal
quotations omitted). The Court contrasted Buckman with
situations "implicating federalism concerns and the historic
primacy of state regulation of matters of health and safety."
Id. at 348 (internal quotations omitted).
Here, in contrast to Buckman, the proceedings against
Zahl are based upon the historic primacy of state regulation
of matters of health and safety and only indirectly and
tangentially affect federal interests. The state proceedings
Zahl seeks to enjoin concern solely New Jersey’s regulation
of the licensing and behavior of its physicians. This is a
matter of paramount state interest; Buckman is therefore
not on point. Nor is this conclusion contrary to our
previous decisions. Ford Motor involved balancing
Pennsylvania’s interest in regulating its insurance industry
against the "unhindered enforcement of federal law." 874
F.2d at 934. The Pennsylvania statute at issue there
precluded simultaneous ownership of an insurance
company and a savings and loan institution. Id. at 930.
Ford Motor raised serious questions of whether the state
11
statute conflicted with federal law. Similar questions are
not present here.
III.
The District Court committed no error in concluding that
the three-part Garden State abstention test has been
satisfied. Because the state proceedings involve an
extremely strong state interest with no countervailing
federal concerns, we conclude that the balancing test
weighs heavily in favor of abstention. New Jersey has a
traditional obligation to regulate the practice of medicine.
Moreover, the operation of the federal Medicare scheme is
not put at risk. If, in carrying out its obligations, New
Jersey determines that a physician has or has not violated
Medicare regulations, the purposes of Medicare are
promoted and not subverted. Therefore, the District Court
committed no error in its decision to abstain. The order of
the District Court will be affirmed. Costs taxed against the

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appellant.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
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