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A federal appellate court has opened the U.S. government to billions of dollars in potential damages for breaking a promise to provide free, lifetime health care to career military personnel. The Feb. 8 ruling by the U.S. Court of Appeals for the Federal Circuit is another dramatic setback for the government, which has unsuccessfully fought liability for breaching contractual promises in such diverse areas as savings-and-loan bailouts, spent nuclear fuel disposal and oil exploration. In all these areas, the potential damages exposure is considered staggering, reaching well into the multibillion-dollar stratosphere. The three-judge Federal Circuit panel in Schism v. U.S., No. 99-1402, held that the government, in recruiting efforts that continued into the early 1990s, promised free lifetime health care to enlistees who served at least 20 years. That promise created an implied-in-fact contract that the government breached in 1956 when Congress passed a law imposing space-available limitations on military medical care, wrote Chief Judge H. Robert Mayer. As the demand for care began to exceed the capacity of military medical facilities, some retirees were turned away based on the 1956 law; they later had to rely on Medicare. “The retirees entered active duty in the armed forces and completed at least twenty years service on the good faith belief that the government would fulfill its promises,” wrote Chief Judge Mayer. “The terms of the contract were set when the retirees entered the service and fulfilled their obligation. The government cannot unilaterally amend the contract terms now.” An estimated 1.5 million military retirees — most from World War II and the Korean War — and their dependents could be eligible for damages totaling $14 billion to $25 billion, according to retired Air Force Col. George E. “Bud” Day of Day & Meade in Fort Walton Beach, Fla., a Medal of Honor recipient who represented retired Navy Col. William O. Schism and retired Air Force Lt. Col. Robert L. Reinlie in the litigation. Day, the nation’s most highly decorated officer and a former “roommate” of U.S. Senator John McCain, R-Ariz., in a Vietnam POW camp, says he will return now to a Florida district court for a determination of damages and for a ruling on a class action certification motion. He also will keep a close eye on Washington, where the federal government has 45 days to request review of the panel decision by the full Federal Circuit and 90 days to seek review in the U.S. Supreme Court. “No decision has been made yet,” says E. Roy Hawkins of the Department of Justice’s civil appellate staff, who opposed Day in the Federal Circuit. ANOTHER WAR Suing the federal government is “like going back to combat,” says Day wryly. The litigation over the government’s promise actually began with Day’s filing a suit on behalf of himself. “I got aggravated,” he recalls. When military retirees were turned away or moved out of military hospitals, they turned to several veterans’ groups, says Day. “The retirees said to them, ‘You’ve got lawyers and a bit of money. Sue them.’ But they all said no.” When word got out that he had sued on behalf of himself, “my office got 3,000 phone calls from all over the country.” Before he knew it, a few military retirees came into his office and offered to do legwork on the litigation. They call themselves the Class Act Group. They have launched a Web site and have collected $100 contributions and thousands of volunteer hours from interested retirees. Day refiled the suit in 1996 on behalf of Schism and Reinlie. Key to the Federal Circuit’s ruling was U.S. v. Winstar, 518 U.S. 839 (1996), which has become the linchpin for recent breach-of-contract actions against the federal government. In Winstar, which involved the government’s savings-and-loan bailout, a lower appellate court held that the terms of a government contract, like any other contract, do not change with the enactment of subsequent legislation. The U.S. Supreme Court, applying ordinary principles of contract, affirmed. When Winstar was affirmed, Day recalls, “I said, ‘Holy smoke, this is great for us.’ “ In Schism, the government argued that any promise of free, lifetime health care was unenforceable because it was not expressly authorized by Congress. But the circuit panel held that Congress had delegated “broad authority” to military secretaries “to recruit service members; and the secretaries, through their agents the recruiters, promised free, lifetime health care to those who met certain service obligations.” Simultaneous with their litigation battle, Day and his supporters began pressing Congress for relief. They erected more than 100 billboards around the country. Using the famous recruiting figure of Uncle Sam, the billboards announce that the government lies. Last year, Congress passed Tricare for Life, which allows retirees over 65 to participate in the military’s health insurance plan, free of cost, if they first buy Medicare’s Part B coverage. The Part B premium is $45 per month. Many retirees have been paying $5,000 or more per year for Medicare supplement policies. “That does not take care of the problem,” says Philip E. Cushman, executive director of Veterans for Due Process. “The bottom line of all this is the government is trying to save money.” Although he is grateful that Congress has acted, Day says it is not enough: “That is all prospective, and it doesn’t give back the money we had to pay to Medicare and for supplementary insurance to cover what Medicare doesn’t.” And, adds Cushman and others, it is not what was promised. When he started the litigation, Day recalls, “I had 13 volunteers, all guys like me, in their 70s. Reinlie is 79 and Schism is 75, and I’ll be 76. Eventually, we got a pretty big group.” But four or five of the group have died during the course of the case, he says. “I’m told that of those eligible, they are dying at the rate of 1,000 a day. The bottom line is we had 3 million plaintiffs when I filed suit and that population is dwindling at lightning speed. It’s terrible.” He will file an emergency motion in the district court to expedite matters, he says, adding, “I think they’re entitled to get paid while they’re alive, instead of the government sweating them out and waiting for them to die.”

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