                           In the
 United States Court of Appeals
              For the Seventh Circuit
                        ____________

No. 06-3521
PARK MANOR, LTD.,
                                                      Petitioner,
                               v.

UNITED STATES DEPARTMENT OF HEALTH AND
HUMAN SERVICES,
                                                     Respondent.
                        ____________
             Petition to Review a Final Decision of the
                Departmental Appeals Board of the
          U.S. Department of Health and Human Services.
                            No. A-05-37.
                        ____________

        ARGUED MAY 4, 2007—DECIDED JULY 23, 2007
                        ____________


  Before POSNER, MANION, and KANNE, Circuit Judges.
  POSNER, Circuit Judge. The petitioner, Park Manor, a
nursing home, asks us to reverse the denial by HHS’s
Departmental Appeals Board of an award of attorneys’ fees
under two provisions of the Equal Access to Justice Act,
5 U.S.C. §§ 504(a)(1) and (4). We have jurisdiction because,
had Park Manor lost before the Board and sought judi-
cial review, we would have had jurisdiction of that re-
view proceeding. 42 U.S.C. § 1320a-7a(e).
2                                               No. 06-3521

  The first subsection of section 504(a) provides that “an
agency that conducts an adversary adjudication shall
award, to a prevailing party other than the United States,”
the party’s reasonable attorney’s fees unless the govern-
ment’s position was “substantially justified.” An agency
within the Department of Health and Human Services
called CMS (Centers for Medicare & Medicaid Services) is
responsible for making sure that nursing homes that
receive reimbursement under the Medicare program
comply with the various rules that HHS has issued for the
protection of the residents of nursing homes. Fairfax
Nursing Home, Inc. v. HHS, 300 F.3d 835, 836 (7th Cir. 2002);
Mimiya Hospital, Inc. v. HHS, 331 F.3d 178, 179 (1st Cir.
2003). To this end CMS conducts annual “surveys” (inspec-
tions of nursing homes). Only it doesn’t conduct the
inspections itself; it has delegated the task to state health
agencies that employ nurses, nutritionists, and other
health professionals to inspect nursing homes for viola-
tions of applicable rules. Id. at 179. If the state agency
reports to CMS that it has found violations, CMS can
forthwith impose sanctions, such as civil penalties and
denial to the nursing home of reimbursement for the
expenses of new residents. 42 U.S.C § 1395i-3(h)(2). The
nursing home can challenge the sanctions, as Park Manor
did here, and the ruling of the first-level decider, an
administrative law judge in HHS, is reviewable by the
Departmental Appeals Board and then by the court of
appeals.
  Inspections of Park Manor conducted by the Wisconsin
health agency in 2001 yielded a 123-page report to CMS.
The agency had found 28 violations. CMS responded by
imposing temporary sanctions but later suspended them
because Park Manor was back in compliance. By the time
No. 06-3521                                              3

the case came before the administrative law judge for a
determination of the validity of the charges and the
possible imposition of permanent sanctions, CMS had
dropped all but seven of the charges. The administrative
law judge dismissed two more on summary judgment. He
then decided that if he sustained just one of the five
remaining charges, this would support the sanctions that
CMS was seeking and he wouldn’t have to consider the
other four charges. So he picked one, sustained it, and
disregarded the rest. The Departmental Appeals Board
reversed the ruling sustaining the one charge, but declined
to remand the case for the administrative law judge to
rule on the other four charges because CMS had not
made an issue before the Board of the administrative law
judge’s declining to consider them.
  That would have ended the proceeding had not Park
Manor sought reimbursement under the Equal Access to
Justice Act of $289,000 in attorneys’ fees. The administra-
tive law judge denied the claim in its entirety, finding
that all the charges brought by CMS, including those that
CMS had dropped and those he had dismissed on sum-
mary judgment, had been substantially justified. The
Departmental Appeals Board affirmed except with respect
to one of the two charges that had been dismissed on
summary judgment, and so awarded Park Manor a por-
tion of the fees it sought, but a tiny portion—less than
$7,000. Park Manor Nursing Home v. Centers for Medicare &
Medicaid Services, DAB No. A-05-37, 2005 WL 3753088 (DAB
Dec. 16, 2005).
  The Board ruled that it did not have to review the merits
of the 21 charges that CMS had dropped before the hear-
ing conducted by the administrative law judge. It ruled
that way because it rejected Park Manor’s contention that
4                                                No. 06-3521

“CMS may not reasonably rely on state survey findings in
making its remedy decisions but must investigate—or look
behind—those findings to verify their correctness before
deciding to impose remedies.” The Board said that “this
premise is inconsistent with the enforcement process . . . .
Reliance by CMS on state survey findings is precisely
what this process permits and encourages. Requiring CMS
to investigate every facility before imposing remedies
would frustrate the goals of protecting residents and
encouraging facilities to correct quickly any deficiencies
that jeopardize resident health and safety.” Id.
  The Board found that all but one of the charges that CMS
had ultimately pursued were substantially justified by
the information contained in the detailed report of Wis-
consin’s health agency. That finding is supported by
substantial evidence and thus binds us. But that leaves
the other 21 charges, the ones CMS dropped before the
hearing. If any of those charges were not substantially
justified, Park Manor is entitled to be reimbursed for the
portion of its attorney’s fees that is reasonably allocable to
them. EuroPlast, Ltd. v. NLRB, 33 F.3d 16, 16-17 (7th Cir.
1994); American Wrecking Corp. v. Secretary of Labor, 364 F.3d
321, 325-26 (D.C. Cir. 2004) (per curiam). They were
dropped early in the process initiated by the survey, but
they gave rise to interim sanctions, and Park Manor
incurred attorney’s fees in getting the sanctions lifted and
argues that CMS should not have imposed the interim
sanctions without independently determining whether the
report of the state agency—the source of the findings on
which the sanctions were based—was accurate.
  HHS must show that CMS was substantially justified in
taking the steps it took that led up to the formal proceeding
before the administrative law judge, as well as in the
No. 06-3521                                                5

steps it took in that proceeding. 5 U.S.C. § 504b(1)(E);
United States v. Hallmark Construction Co., 200 F.3d 1076,
1080-81 (7th Cir. 2000); Roanoke River Basin Ass’n v.
Hudson, 991 F.2d 132, 138-39 (4th Cir. 1993); Natural
Resources Defense Council, Inc. v. EPA, 703 F.2d 700, 706-
07 (3d Cir. 1983). But CMS has delegated on-site inspection
of nursing homes to responsible state agencies, and the
delegation is not only lawful, 42 U.S.C. § 1395aa(a), but
sensible. The states impose their own rules on
nursing homes, and it is efficient to have the same agency
investigate compliance with both sets of rules rather
than to have two inspections of the same nursing home by
two agencies. The economy achieved by delegation
would be lost if before acting on the results of the state
agency’s report the federal government had to duplicate
the agency’s investigation on pain of having to reimburse
the nursing home’s attorney’s fees should the state report
prove to contain critical errors. That would also retard the
correction of the deficiencies found by the state agency,
here quickly achieved when CMS imposed interim sanc-
tions.
  Park Manor argues that the state agency’s reports are
one-sided, nonadversary, and therefore unreliable. It
might as well argue that the government cannot put a
person to the expense of defending against a criminal
charge on the basis of a grand jury’s indictment, as pro-
ceedings before a grand jury are one-sided too; an indict-
ment establishes probable cause to believe the defendant
guilty of crime, and no more is required to justify institut-
ing a criminal proceeding. The state agency’s report of
violations establishes probable cause for CMS to impose
interim sanctions and seek permanent ones, and no more
is required to establish substantial justification under
6                                               No. 06-3521

section 504(a)(1). Park Manor Nursing Home v. Centers for
Medicare & Medicaid Services, supra; Harmony Court v.
Centers for Medicare & Medicaid Services, DAB No. 1968,
2005 WL 835751 (DAB Mar. 28, 2005). Imposing interim
sanctions in advance of full investigation is a sensible
procedure with familiar analogs in the interim remedies
available in ordinary civil litigation, such as temporary
restraining orders.
  Park Manor has another arrow in its quiver. Section
504(a)(4) provides that if “the demand [made of a party] by
the agency is substantially in excess of the decision of the
adjudicative officer and is unreasonable when compared
with such decision, under the facts and circumstances of
the case,” the party is entitled to the attorneys’ fees that
it reasonably incurred in resisting the demand. Park
Manor argues that since HHS awarded the government
no relief at all, CMS’s demand for sanctions must have
been “substantially in excess of the decision” and “unrea-
sonable when compared with” the decision.
  Park Manor admits that this interpretation would
undercut the “substantially justified” standard of sub-
section (1) by giving litigants a second bite at the same
apple under a different (but seemingly not a more demand-
ing) standard. The sensible interpretation, which avoids
this anomaly, confines subsection (4) to the case in
which the government prevails but the relief it obtains is
meager in comparison to the relief it had sought. American
Wrecking Corp. v. Secretary of Labor, supra, 364 F.3d at 327-
28; see Judith E. Kramer, “Equal Access to Justice Act
Amendments of 1996: A New Avenue for Recovering Fees
from the Government,” 51 Admin. L. Rev. 363, 376 (1999).
By seeking excessive relief, an agency forces the party
against which it is proceeding to incur an excessive ex-
No. 06-3521                                                 7

pense to defend itself. The proceeding is justified, so far as
the party’s liability is concerned; it is only the relief de-
manded that is unjustifiable. The parallel is to Rule 68 of
the Federal Rules of Civil Procedure, which relieves a
defendant from having to pay the plaintiff’s costs if hav-
ing refused the defendant’s offer of judgment the plain-
tiff obtains a smaller judgment. The rule penalizes the
greedy winning plaintiff but is inapplicable if the defen-
dant wins. See Delta Air Lines, Inc. v. August, 450 U.S. 346
(1981). Subsection (4) has a similar office, and thus has no
application to this case because the entity against which
the government was proceeding, Park Manor, prevailed.
  The petition for review is
                                                     DENIED.

A true Copy:
       Teste:

                          _____________________________
                          Clerk of the United States Court of
                            Appeals for the Seventh Circuit




                    USCA-02-C-0072—7-23-07
