Berlin Convalescent Center, Inc. v. Stoneman, 91-127

Citation159 Vt. 53,615 A.2d 141
Decision Date19 June 1992
Docket NumberNo. 91-127,91-127
CourtUnited States State Supreme Court of Vermont
Parties, Medicare & Medicaid Guide P 40,866 BERLIN CONVALESCENT CENTER, INC. and American Health Care, Inc. v. Kent STONEMAN, Director, Division of Rate Setting, et al.

Martin K. Miller and Patricia L. Rickard of Miller, Eggleston & Rosenberg, Ltd., Burlington, for plaintiffs-appellants.

Jeffrey L. Amestoy, Atty. Gen., Montpelier, and Marjorie Power, Sp. Asst. Atty. Gen., Waterbury, for defendants-appellees.

Before ALLEN, C.J., and GIBSON, DOOLEY and JOHNSON, JJ.

DOOLEY, Justice.

This case involves a dispute over nursing home rates. Plaintiffs, Berlin Convalescent Center, Inc., and American Health Care, Inc., both owners and operators of nursing homes, appealed to superior court a rate decision made by defendants, agencies and officials of the State of Vermont. The court granted defendants' summary judgment motion because it concluded that earlier decisions in the ongoing rate dispute between plaintiffs and defendants constituted a res judicata bar to plaintiffs' claims. On appeal, plaintiffs argue that res judicata does not apply and that summary judgment was improper. We affirm.

A history of the events in this proceeding is necessary. In June of 1987, defendants determined that daily rates payable to nursing homes for care of Medicaid patients would increase by 2.6% for fiscal year 1988 (July 1, 1987 through June 30, 1988) over those payable in the prior year. Alleging that the increase was insufficient to meet legal requirements, plaintiffs appealed the decision to the Washington Superior Court pursuant to 33 V.S.A. § 195(a)(2), now recodified as 33 V.S.A. § 909(a)(2). They claimed that the rates were inadequate to cover the costs that had to be incurred by a nursing home operated in accordance with regulatory standards.

After a hearing on the merits, the superior court issued a decision on May 5, 1989 agreeing with plaintiffs in part (the merits decision). In reaching its decision, the court concluded that the appropriate standard of review required it to rely primarily on the record made in the administrative agency and that it would not overturn the administrative decision absent a finding of abuse of discretion. Nevertheless, the court found that the rate increase was legally inadequate for five reasons:

1. The increase was based on national data about the cost of running an efficient and economical nursing home, and thus failed to accurately reflect Vermont's particular economic conditions.

2. After the prospective inflation rate was selected, it was reduced because rates selected in the past proved to be too high. There was no economic basis for that decision.

3. The error itemized in 2. above was magnified by the use of a "half year inflation factor."

4. The rate was improperly reduced to offset a separate increase in Medicaid rates for nursing homes voted by the Legislature to take effect January 1, 1988.

5. The base rate did not adequately account for increased staffing requirements resulting from new health and safety standards.

Based on these deficiencies, the court found defendants' action to be unreasonable, clearly erroneous and an abuse of discretion. It reversed and remanded the rate "for recalculation as to these petitioners." Neither party appealed the merits decision. 1

In August of 1989, plaintiffs moved for enforcement of the superior court's merits decision and for contempt, alleging that defendants had failed to recalculate the rate increase. On October 24, 1989, defendants filed a revised rate decision establishing a 3.9% increase for FY 1988. On November 22, 1989, plaintiffs filed a separate appeal of those rates. On January 10, 1990, they renewed their motion for enforcement and contempt, alleging that the new rates failed to comply with the merits decision. On March 28, 1990, the superior court took up plaintiffs' motions for enforcement and contempt. The record for that hearing consisted of communications between plaintiffs and defendants in the recalculation process and two affidavits submitted by defendants to describe how the recalculation was accomplished. Based on that record, the court concluded that defendants had cured each of the five deficiencies found in the merits decision and that the new rate increase decision complied with the merits order, assuming that defendants did what the affidavits indicated they had done (the enforcement decision). Because plaintiffs alleged that defendants did not use the methods they claimed, the court gave plaintiffs an opportunity to show evidence of this, emphasizing that, "they must substantiate their allegations with evidence of non-compliance in the method of recalculation and not just attempt to re-try the case because they are disappointed that the recalculated inflation factor does not equal 7.8 percent [the amount they sought]."

In response to the enforcement decision, plaintiffs filed an affidavit of the presidents of the plaintiff corporations, stating that the actual costs of operation of their nursing homes was about seven dollars per patient per day higher than the recalculated reimbursement rate. Plaintiffs also filed an affidavit of their accountant, stating that the Director of the Vermont Division of Rate Setting had told him that the Director would be retired by the time the rates were finally set. After evaluating these affidavits, the court denied the motion to enforce and for contempt, concluding that plaintiffs were again arguing only that they did not obtain the rates they wanted and were "attempting to retry the entire case on the merits" (the supplemental enforcement decision). Neither party appealed the enforcement decisions.

The action then shifted to the independent appeal of the rate decision filed by plaintiffs in November of 1989. Defendants moved for summary judgment, claiming that all issues had been resolved in the earlier enforcement action. The court agreed and dismissed the appeal (the summary judgment decision). Plaintiffs appeal from this decision.

The doctrine of res judicata, also known as claim preclusion, bars the litigation of a claim or defense if there exists a final judgment in former litigation in which the "parties, subject matter and causes of action are identical or substantially identical." Berisha v. Hardy, 144 Vt. 136, 138, 474 A.2d 90, 91 (1984). It bars not only issues actually litigated but also those which "should have been raised in previous litigation." American Trucking Ass'ns v. Conway, 152 Vt. 363, 370, 566 A.2d 1323, 1328 (1989). Similar in effect, although more narrow in scope, is the doctrine of collateral estoppel or issue preclusion. It bars "the subsequent relitigation of an issue which was actually litigated and decided in a prior case between the parties resulting in a final judgment on the merits, where that issue was necessary to the resolution of the action." Id. at 369, 566 A.2d at 1327. The elements of issue preclusion have recently been itemized in Trepanier v. Getting Organized, Inc., 155 Vt. 259, 265, 583 A.2d 583, 587 (1990):

(1) preclusion is asserted against one who was a party or in privity with a party in the earlier action; (2) the issue was resolved by a final judgment on the merits; (3) the issue is the same as the one raised in the later action; (4) there was a full and fair opportunity to litigate the issue in the earlier action; and (5) applying preclusion in the later action is fair.

We also set forth a nonexclusive list of factors bearing on whether the last two elements are present. Both claim and issue preclusion protect the courts and the parties against the burden of relitigation, encourage reliance on judicial decisions, prevent vexatious litigation and decrease the chances of inconsistent adjudication. See id.; Fitzgerald v. Fitzgerald, 144 Vt. 549, 552, 481 A.2d 1044, 1046 (1984).

Although the summary judgment decision of the trial court was phrased in terms of res judicata, it was actually an issue-preclusion decision, focusing on what was actually litigated in the prior proceeding. The court held that plaintiffs are barred from relitigating the applicable standard of review and whether, under that standard of review, defendants acted in accordance with law in setting the fiscal year 1988 rates. Having decided those issues in favor of defendants, the court concluded that plaintiffs could not prevail on the merits of the appeal and granted summary judgment. Plaintiffs argue that the issues in the earlier decision were different and narrower so that their resolution does not preclude plaintiffs from obtaining a de novo review of the new rate decision, and, in any event, there are disputed issues of fact that make summary judgment inappropriate. We start by examining the issues that the court found plaintiffs were precluded from relitigating.

The first issue is the standard of review. A party aggrieved by a final order of the Division of Rate Setting of the Vermont Agency of Human Services has a right "to appeal de novo to the superior court" where the nursing home facility is located. 33 V.S.A. § 909(a)(2). In the merits decision, the superior court analyzed the wording of the statute in light of this Court's decision in Chioffi v. Winooski Zoning Board, 151 Vt. 9, 11 n. 2, 556 A.2d 103, 105 n. 2 (1989), which noted a distinction between "de novo review" and "trial de novo," and concluded that, despite the use of the words "de novo," the statute did not call for "a retrial or ... extensive judicial record making." It went on to conclude that the Division's rate decision was discretionary and could be overturned only by a showing of abuse of discretion that resulted in prejudice to the appealing party....

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