Baker Cnty. Med. Servs., Inc. v. State

• Decision Date: 15 October 2015
• Docket Number: No. 1D14–4988.,1D14–4988.
• Citation: 178 So.3d 71
• Parties: BAKER COUNTY MEDICAL SERVICES, INC., d/b/a Ed Fraser Memorial Hospital, Appellant, v. STATE of Florida, Agency for Health Care Administration, and West Jacksonville Medical Center, Inc., a foreign corporation, Appellee.
• Court: Florida District Court of Appeals

178 So.3d 71

BAKER COUNTY MEDICAL SERVICES, INC., d/b/a Ed Fraser Memorial Hospital, Appellant,

v.STATE of Florida, Agency for Health Care Administration, and West Jacksonville Medical Center, Inc., a foreign corporation, Appellee.

No. 1D14–4988.

District Court of Appeal of Florida, First District.

Oct. 15, 2015.

Geoffrey D. Smith, Susan C. Smith, and Kara L. Gross, of Smith & Associates, Tallahassee, for Appellant.

Tracy Cooper George, Chief Appellate Counsel, Agency for Health Care Administration, Tallahassee; Stephen A. Ecenia, J. Stephen Menton, and R. David Prescott, of Rutledge Ecenia, P.A., Tallahassee, for Appellee.

MAKAR, J.

Baker County Medical Services, which operates Ed Fraser Memorial Hospital in Macclenny, Florida, contests the legality of the duration of the term of a certificate of need issued to West Jacksonville Medical Center, Inc., for the construction of a new 85–bed hospital in western Duval County. The certificate, which was issued in 2010 under the terms of a settlement agreement arising from administrative litigation between West Jacksonville and a nearby competitor, St. Vincent's Hospital, would not become effective until mid–2013 with licensure to follow no earlier than December 2016. The new hospital has not been built; indeed, land has yet to be acquired for the project. Fraser Hospital, which was not a party in the administrative forum, filed its legal challenge in the circuit court, which dismissed it with prejudice as an impermissible collateral attack on the certificate's issuance, leading to this appeal. We must decide whether the challenge in circuit court is permissible.

I.

Certificates of need entitle their holders to build certain types of "health-care-related project," such as hospitals, see § 408.036(1)(a), Fla. Stat. ("Projects subject to review; exemptions"), the ostensible purpose being to contain health care costs by allowing for government coordination and planning in place of what would otherwise be a free market. See generally National Conference of State Legislatures, Certificate of Need: Health Laws and Programs, http://www.ncsl.org/research/health/con-certificate-of-need-state-laws.aspx (overview of certificate of need programs nationwide) (last visited August 4, 2015). Absent a certificate, a competing company may not enter the marketplace unless it demonstrates administratively the need for a proposed facility and receives its own certificate of need; to do otherwise is a second degree misdemeanor. § 408.041, Fla. Stat. Incumbents are shielded partially from economic competition for the duration of their certificates. As a result, litigation over certificates of need can be as intense as market competition itself, resulting in lobbying and litigation to prevent market entry to retain the competitive advantages that incumbent certificate holders possess. See, e.g., Hosp. Bldg. Co. v. Trs. of Rex Hosp., 425 U.S. 738, 738, 96 S.Ct. 1848, 48 L.Ed.2d 338 (1976) (antitrust action by hospital alleging competing hospital violated federal antitrust laws by conspiracy to block its relocation and expansion stated claim affecting interstate commerce); Kottle v. Nw. Kidney Ctrs., 146 F.3d 1056 (9th Cir.1998) (lobbying efforts of competitor to prevent applicant from receiving certificate of need protected as constitutionally-permissible petitioning of government); St. Joseph's Hosp., Inc. v. Hosp. Corp. of Am., 795 F.2d 948, 955 (11th Cir.1986) (misrepresentations to state health care agency that passes upon certificate applications actionable under antitrust laws); see generally Patrick John McGinley, Beyond Health Care Reform: Reconsidering Certificate of Need Laws in a "Managed Competition" System, 23 Fla. St. U.L.Rev. 141 (Summer 1995) (discussing the conflict between certificates of need and managed competition); Scott D. Makar, Anticompetitive Actions in the Administrative Forum: Antitrust and State Law Remedies, Fla. B.J., Feb. 1992, at 33, 37 (noting that "persons aggrieved by anticompetitive administrative actions may consider state administrative law remedies that provide limited remedies for ‘improper’ or ‘frivolous' administrative actions.").

Florida's Agency for Health Care Administration, universally known as AHCA, administers the State's certificate of need program. Almost all trial-level litigation involving certificates of need occurs in the administrative forum before an administrative law judge whose orders are subject to AHCA's approval. This case is different because Fraser Hospital did not participate in the administrative proceedings that ultimately resulted in AHCA's issuance of the certificate of need at issue. Rather, Fraser Hospital initiated a circuit court proceeding in December 2013 without having participated or intervened in the administrative process that terminated three years earlier. Because dismissal of Fraser Hospital's amended complaint is the focus of our inquiry, we recite its relevant allegations.

In 2009, West Jacksonville sought a certificate of need for construction of a new hospital within the sub-district encompassing a number of existing hospitals, including Fraser Hospital. Litigation ensued, initiated by St. Vincent's Hospital which protested the need for the certificate. Within the year, West Jacksonville and St. Vincent's entered into a settlement agreement in November 2010, which was presented to and approved by AHCA, resulting in the issuance of a certificate of need that included the requirement that its "validity period shall not commence to run until June 1, 2013." Existing statutory law provided that the validity period for a certificate of need expired 18 months after issuance, and could be extended only in limited circumstances such as when litigation or construction results in delays (discussed later). In addition, the certificate at issue specified that "[n]either [AHCA] nor West Jacksonville will license the hospital ... prior to December 1, 2016." In effect, a six-year period from certificate issuance to hospital licensure was established administratively pursuant to the terms of the settlement agreement.

Fraser Hospital asserted that AHCA had no statutory authority to delay the validity period of the certificate, and that none of the statutory grounds for extensions had been sought. Rather, the economic upturn that made the new hospital appear viable was followed by a severe economic downturn that made it economically infeasible unless it invaded the markets of neighboring hospitals, such as Fraser Memorial (and St. Vincent's).

In its initial complaint, Fraser Hospital sought a declaratory judgment that the certificate at issue, by the terms of the applicable statute, must terminate after 18 months and thereby expired on or about June 7, 2012. It also claimed that AHCA lacked the statutory authority to extend or delay the start of the validity period of the certificate. Rather than extend or delay the start of the validity period, Fraser Hospital contended that the only appropriate process would be for West Jacksonville to initiate a new request for a certificate of need. Its amended complaint was identical to the first except for the allegations that AHCA's authority was statutorily limited and that the validity period of a certificate of need set by statute could not be extended by agreement or stipulation of the parties in an administrative proceeding.

Both West Jacksonville and AHCA moved to dismiss the amended complaint, pointing out that Fraser Hospital failed to participate in the administrative proceedings thereby waiving its only opportunity to contest the lawfulness of the certificate's duration; dismissal was also appropriate because the judicial relief sought in the circuit court was an inappropriate vehicle to challenge an administratively-issued certificate of need. Whatever claim Fraser Hospital made about the validity of the certificate's duration had to be asserted in the administrative forum, making a declaratory judgment action an improper collateral attack on AHCA's final order. The trial court, agreeing with West Jacksonville and AHCA, held in relevant part that a "declaratory judgment is an unauthorized collateral attack on final agency action. [AHCA] acted in accordance with its statutory authority in entering the Final Order and Settlement Agreement granting [the certificate] and extending the validity period of [the certificate]. See § 408.040(2)(c), Fla. Stat. [AHCA] did not act without colorable statutory authority in issuing the Final Order." This appeal ensued.

II.

In assessing the viability of Fraser Hospital's action in circuit court, the trial court recognized the heavy burden to be overcome to allow a collateral attack against final agency action; policy considerations—such as the finality of judgments—strongly disfavor such actions absent a showing that an agency's challenged action is so lacking in statutory authority that an exception should be made. Dep't. of Envtl. Reg. v. Falls Chase Special Taxing Dist., 424 So.2d 787, 794 (Fla. 1st DCA 1982) ("Only in exceptional cases may the courts assume jurisdiction to render declaratory and/or injunctive relief without requiring exhaustion of administrative remedies. A challenge to agency jurisdiction on persuasive grounds is a widely recognized exception to the exhaustion doctrine.") (citation and footnote omitted); Dep't of Health v. Curry, 722 So.2d 874, 878 (Fla. 1st DCA 1998) ("The doctrine which requires the exhaustion of administrative remedies is based upon considerations of policy, rather than of jurisdiction.") (citation omitted). This judicially-created exception provides that it is permissible to pursue declaratory relief in a circuit court—without first pursuing and exhausting administrative remedies—if "an agency acts without colorable statutory authority that is clearly in excess of its delegated powers." Dep't of Agric. & Consumer Servs. v. City of Pompano Beach, 792 So.2d 539, 546 (Fla. 4th DCA 2001) ; e.g., Curry, 722...