10TH Street Medical, Inc. v. State

• Decision Date: 02 July 2009
• Docket Number: No. 100,746.,100,746.
• Citation: 210 P.3d 670
• Parties: 10TH STREET MEDICAL, INC., Appellant, v. STATE of Kansas and Kansas Secretary of Social and Rehabilitation Services, Appellees.
• Court: Kansas Court of Appeals

210 P.3d 670

10TH STREET MEDICAL, INC., Appellant, v. STATE of Kansas and Kansas Secretary of Social and Rehabilitation Services, Appellees.

No. 100,746.

Court of Appeals of Kansas.

July 2, 2009.

J. Todd Hiatt and Kevin L. Diehl, of Ralston, Pope & Diehl, L.L.C., of Topeka, for appellant.

C. William Ossmann, Chief of Litigation, and Danny J. Baumgartner, litigation attorney, of Kansas Department of Social and Rehabilitation Services, for appellee.

Before HILL, P.J., LARSON, S.J., and BRAZIL, S.J.

HILL, J.

This appeal arises from the summary judgment granted in a lawsuit seeking damages from the State of Kansas and the Kansas Department of Social and Rehabilitation Services. In 2000, the Department ended a contract with 10th Street Medical, Inc., to provide durable medical equipment to Medicaid recipients under the Kansas Medicaid Program based on some complaints from its customers. 10th Street Medical pursued an administrative appeal of this termination and won, thus gaining the restoration of its contract. About 4 years later, 10th Street Medical filed this lawsuit. The district court granted summary judgment to the State and its agency, ruling some of 10th Street Medical's claims were unavailable as a matter of law and that by not pursuing the Kansas Act for Judicial Review of Civil Enforcement of Agency Actions, their breach of contract claim was time barred. We affirm. Because a claim for damages could have been made in district court under the Act and 10th Street Medical did not make such a claim, we hold summary judgment was proper.

Since this matter was subject to summary judgment, the facts are uncontested.

Calling it the Kansas Medicaid Program, the Kansas Department of Social and Rehabilitation Services administers the federal Medicaid program in Kansas. 10th Street Medical became a Medicaid provider by signing an agreement with the Kansas Secretary of Social and Rehabilitation Services in 1993. The company sold, repaired, and maintained durable medical equipment to and for Medicaid recipients.

Then, over the years, between November 1997 and April 2000, the Department received 13 complaints about 10th Street Medical. From these complaints, the Department concluded the company had not complied with the 1993 Provider Agreement and the Department's administrative regulations. Following up on this decision, the Department notified 10th Street Medical that it intended to terminate their agreement on May 29, 2000. But first, the Department, on May 9, 2000, mailed letters to all of 10th Street Medical's Medicaid customers telling them to choose another provider.

10th Street Medical administratively appealed this decision using the Kansas Administrative Procedure Act, K.S.A. 77-501 et seq., and the administrative regulation found at K.A.R. 30-7-68. Ultimately, in November 2000, the presiding officer ruled in favor of 10th Street Medical and reversed the contract termination. Accordingly, the Department reinstated 10th Street Medical as a Medicaid provider retroactive to May 29, 2000, pending the outcome of the Department's appeal to the State Appeals Committee. That appeals committee affirmed the presiding officer's decision to reverse the contract termination and entered a final order on the matter in April 2001. But having won the battle over the contract, 10th Street Medical lost the war and had to file for bankruptcy protection.

This lawsuit is filed in Shawnee County District Court.

On May 23, 2005, 10th Street Medical filed a petition against the State and the Secretary of Social and Rehabilitation Services. The first petition was, by agreement, dismissed and refiled. Later, in January 2006, 10th Street Medical amended its petition. 10th Street Medical seeks damages in excess of $75,000 for the termination of its Medicaid provider status. The company presented three theories: (1) breach of contract, (2) promissory estoppel, and (3) negligence.

In granting summary judgment to the defendants, the district court made three rulings. First, the district court found that it lacked subject matter jurisdiction to consider 10th Street Medical's breach of contract claim because the Kansas Act for Judicial Review and Civil Enforcement of Agency Actions, K.S.A. 77-601 et seq. provided the exclusive means to litigate such a claim. Second, the district court held that promissory estoppel did not apply as a matter of law since the 1993 Medicaid Provider Agreement, which governed the relationship between 10th Street Medical and the Department, was properly enforced in the underlying administrative action. Finally, the district court decided that when 10th Street Medical failed to show the Department owed the company any duty independent of the contractual obligations found in the provider agreement, the company had no negligence claim.

We examine the contract claim.

On appeal, 10th Street Medical challenges the district court's decision to grant summary judgment on its breach of contract claim. To review this claim of error, we apply the following standard of review:

"`"`Summary judgment is appropriate when the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The trial court is required to resolve all facts and inferences, which may reasonably be drawn from the evidence in favor of the party against whom the ruling is sought. When opposing a motion for summary judgment, an adverse party must come forward with evidence to establish a dispute as to a material fact. In order to preclude summary judgment, the facts subject to the dispute must be material to the conclusive issues in the case. On appeal, we apply the same rules and where we find reasonable minds could differ as to the conclusions drawn from the evidence, summary judgment must be denied.'"' [Citations omitted.]" Korytkowski v. City of Ottawa, 283 Kan. 122, 128, 152 P.3d 53 (2007).

We offer a review of three appellate cases that are helpful in deciding this issue, Jones v. State, 279 Kan. 364, 109 P.3d 1166 (2005), Americare Properties, Inc. v. S.R.S., 241 Kan. 607, 738 P.2d 450, cert. denied 484 U.S. 964, 108 S.Ct. 453, 98 L.Ed.2d 393 (1987), and Lindenman v. Umscheid, 255 Kan. 610, 875 P.2d 964 (1994). These three cases lead us to agree with the district court. A breach of contract claim against the State of Kansas, or one of its agencies, must be brought in a Kansas Act for Judicial Review and Civil Enforcement of Agency Actions proceeding if the action being challenged meets the statutory definition of "agency action" and the Act does not specifically exempt that agency from its authority. See K.S.A.2008 Supp. 77-603(a); K.S.A. 77-606.

In Jones, the Supreme Court held that the Act was the plaintiff's exclusive avenue into court for a breach of contract claim against the State when it concerned the Department of Social and Rehabilitation Service's failure to perform an "agency action" as defined in K.S.A. 77-602(b)(3). In Jones, because the plaintiff's foster parents' son had sexually assaulted the plaintiff, the foster parents assigned to plaintiff any breach of oral contract action they would have for the Department's failure to provide them with liability insurance coverage in the amount of $100,000. We do note that the plaintiff in Jones brought a declaratory judgment action against the Department, the State, and Empire Insurance Company before exhausting her administrative remedies, which differs from this case. Nevertheless, similar to this case, the plaintiff's breach of contract claim against the State centered on the Department's failure to perform its contractual duty of providing insurance coverage to plaintiff's foster parents, which Jones found qualified as an agency action under the Act. 279 Kan. at 367-68, 109 P.3d 1166.

Using the analysis set forth in Jones, we find that 10th Street Medical's breach of contract claim concerns an agency action as defined by K.S.A. 77-602(b)(3). That statute defines an "agency action" as "an agency's performance of, or failure to perform, any other duty, function or activity, discretionary or otherwise." Here, the duty 10th Street Medical is challenging arises from the termination provision in the 1993 Provider Agreement, which gives the Department the discretion to terminate its Medicaid provider status for noncompliance with the provider agreement or K.A.R. 30-5-60. It follows then that 10th Street Medical's breach of contract claim centers on their belief that the Department failed to exercise its discretion in a proper manner when it decided to terminate the agreement based on the 13 complaints. Thus, under K.S.A. 77-602(b)(3), this discretionary action qualifies as an agency action.

Furthermore, we must point out that the Act does not exclude the Department from its ambit. K.S.A. 77-606 states the Act "establishes the exclusive means of judicial review of agency action" unless specifically exempted by K.S.A.2008 Supp. 77-603(a). In turn, K.S.A.2008 Supp. 77-603(a) states the Act "applies to all agencies and all proceedings for judicial review and civil enforcement of agency actions not specifically exempted by statute from the provisions of this act." (Emphasis added.) See also Heiland v. Dunnick, 270 Kan. 663, 668, 19 P.3d 103 (2001) ("`The KJRA [Act] is the exclusive remedy for all requested relief which an agency can grant under its authority. Only actionable claims which fall outside the authority of an agency to grant can support a separate action by an aggrieved party.'"). Then, in K.S.A.2008 Supp. 77-603(c) the law sets forth the specific exemptions, and as noted in Jones, the Department of Social and Rehabilitation Services has not been specifically exempted. 279 Kan. at 368, 109 P.3d 1166.

Because of its successful administrative appeal in this case, 10th Street Medical asserts the...