Bishop v. Evangelical Good Samaritan Soc., No. 30,899.

• Docket Nº: No. 30,899.
• Citation: 2009 NMSC 036, 212 P.3d 361
• Case Date: June 23, 2009
• Court: Supreme Court of New Mexico

212 P.3d 361 2009 NMSC 036 Susan BISHOP and Mark Skofield, as Class Representatives in their capacities as Personal Representatives of the Estate of Richard H. Skofield, Plaintiffs-Petitioners and Cross-Respondents,
v.
EVANGELICAL GOOD SAMARITAN SOCIETY, a foreign corporation, d/b/a Manzano Del Sol Good Samaritan Village, Defendant-Respondent and Cross-Petitioner. No. 30,899. Supreme Court of New Mexico. June 23, 2009.

[212 P.3d 362]

Eric Sedillo Jeffries, L.L.C., Eric Sedillo Jeffries, Law Offices of Brian A. Thomas, P.C., Brian A. Thomas, Albuquerque, NM, for Petitioners and Cross-Respondents.

Modrall, Sperling, Roehl, Harris & Sisk, P.A., Martha Brown, Albuquerque, NM, Quarles & Brady, L.L.P., Daniel E. Conley, Milwaukee, WI, for Respondent-Cross Petitioner.

OPINION

BOSSON, Justice.

{1} This appeal arises from a class action lawsuit contesting fee increases at Manzano Del Sol Good Samaritan Village (Manzano), an independent living facility for senior citizens. Evangelical Good Samaritan Society (Good Samaritan), Defendant in this class action, is a nonprofit corporation that owns and operates more than two hundred independent living facilities nationwide, including the Manzano facility in Albuquerque. Plaintiffs' lawsuit alleged that from July 30, 1993 to July 30, 1999, Good Samaritan imposed rate increases on residents at Manzano in

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violation of the standards set forth in their contracts (Entrance Agreements) and in the Continuing Care Act, NMSA 1978, §§ 24-17-1 to -18 (1985, as amended through 2005). This is our first occasion to consider the provisions of the Continuing Care Act. For the reasons stated below, we agree with Plaintiffs and reverse the Court of Appeals.

BACKGROUND

{2} All retirement communities in New Mexico that undertake to provide "independent living and health or health-related services," § 24-17-3(C), for a fee, are subject to the Continuing Care Act. See §§ 24-17-2 to -3. The Continuing Care Act was designed to "provide for disclosure and the inclusion of certain information in continuing care contracts in order that residents may make informed decisions concerning continuing care and to provide protection for residents and communities." Section 24-17-2(B). Toward that end, the Continuing Care Act mandates that certain information must be disclosed in all contracts between continuing care facilities and their residents. See id. At issue in this case is the legislative requirement that all continuing care contracts "state when fees will be subject to periodic increases and what the policy for increases will be; provided, however, that ... increases shall be based upon economic necessity, the reasonable cost of operating the community, the cost of care and a reasonable return on investment." Section 24-17-5(B)(11) (emphasis added).

{3} The contractual language in the Manzano Entrance Agreement for prospective residents governing initial monthly rent and future annual increases mirrors the language in Section 24-17-5(B)(11) of the Continuing Care Act. It states:

The monthly service fee may be subject to increases provided, however, that MANZANO shall give advance notice of not less than thirty (30) days to the RESIDENT before any increase in monthly service fee becomes effective and increases shall be based upon economic necessity, the reasonable cost of operating MANZANO, the cost of care and reasonable return on investment.

{4} Good Samaritan raised its fee for Manzano residents 2.5% in 1994, 6% in 1995, 3% in 1996, 4% in 1997, and 2% in 1998. Good Samaritan did not impose a rate increase in 1999. As a result, Plaintiffs allege that Manzano generated significant profits throughout these years. More importantly, Plaintiffs argue that Good Samaritan failed to apply two of the four factors required by both the Continuing Care Act and the Entrance Agreements when evaluating the need for annual rate increases. Significantly for this case, several witnesses admitted that Good Samaritan never considered the fourth factor — reasonable return on investment — before imposing each increase.

{5} Based on the evidence submitted at trial, the district court found that the rate-setting practices utilized by Good Samaritan at its Manzano facility violated the Continuing Care Act and breached the terms of the Entrance Agreements. The district court stated that "[i]n raising fees, [Good Samaritan] did not consider whether the increases complied with the [Continuing Care Act]. Specifically, prior to each increase, [Good Samaritan] did not determine if the increase was based upon economic necessity or a reasonable return on investment." As a result, the district court concluded that Good Samaritan "obtained an unreasonably high rate of return on its investment in Manzano del Sol, given [its] particular financial picture...." The district court found Good Samaritan liable to Plaintiffs' class for violating the Continuing Care Act and for breach of the Entrance Agreements, and awarded damages to the class in the amount of $154,415.

{6} The Court of Appeals reversed that judgment, holding that nonprofit continuing care facilities were not required to consider reasonable return on investment when calculating rate increases. Bishop v. Evangelical Lutheran Good Samaritan Soc'y, 2008-NMCA-033, ¶ 11, 143 N.M. 640, 179 P.3d 1248. That Court agreed with Good Samaritan's position that the Legislature did not intend to require nonprofit organizations to consider reasonable return on investment in their rate-setting calculations because nonprofit organizations "do not depend on shareholder-investors

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who contribute funds with the expectation of receiving a return on their investment." Id. ¶ 10. Likewise, the Court held that Good Samaritan did not violate its Entrance Agreements, and stated that "when a statute requires contracts of a particular class to contain provisions specified by the legislature, contractual provisions tracking mandatory statutory language `must be interpreted and given effect in accordance with the intention of the legislature, regardless of what the contracting parties may have understood it to mean.'" Id. ¶ 12 (quoting 5 Margaret N. Kniffin, Corbin on Contracts § 24.26, at 278 (Rev. ed.1998)). The Court concluded that "[i]f Good Samaritan did not violate the [Continuing Care Act] by not basing increases on a reasonable return on investment, then it likewise did not violate the statutorily mandated provisions of its Entrance Agreements by not basing increases on a reasonable return on investment." Id.

{7} In their petition for certiorari, Plaintiffs contend that the Court of Appeals misread the Continuing Care Act and the intent of the Legislature. Good Samaritan cross-petitioned, arguing that if the reasonable return on investment language does apply to nonprofit facilities, then the Act is unconstitutionally vague.

DISCUSSION

Statutory Interpretation of the Continuing Care Act

{8} The Court of Appeals correctly indicated that the parties' dispute presents an issue of statutory construction. Id. ¶ 8. "The meaning of language used in a statute is a question of law that we review de novo." Cooper v. Chevron U.S.A., Inc., 2002-NMSC-020, ¶ 16, 132 N.M. 382, 49 P.3d 61. Because the parties advocate different approaches to statutory interpretation, we briefly address the role of appellate courts when construing a statute before deciding the issue.

{9} Plaintiffs argue that the plain language of Section 24-17-5(B)(11), "[fee] increases shall be based upon economic necessity, the reasonable cost of operating the community, the cost of care and a reasonable return on investment," is clear and unambiguous, thereby eliminating the need for a more substantive appellate review. See State ex rel. Helman v. Gallegos, 117 N.M. 346, 347, 871 P.2d 1352, 1353 (1994) (stating where a statute is free from ambiguity, there is no room for construction). Good Samaritan, on the other hand, argues that the language in Section 24-17-5(B)(11) is ambiguous, particularly as applied to nonprofit continuing care facilities, and that we must engage in a more complete contextual review. See Gallegos, 117 N.M. at 348, 871 P.2d at 1354 ("[W]here the language of the legislative act is doubtful or an adherence to the literal use of words would lead to injustice, absurdity or contradiction, the statute will be construed according to its obvious spirit or reason, even though this requires the rejection of words or the substitution of others." (Internal quotation marks and citation omitted.)).

{10} As Chief Justice Montgomery wrote in Gallegos,

the two approaches, correctly understood, can be viewed as complementary, not contradictory. That is, if the meaning of a statute is truly clear — not vague, uncertain, ambiguous, or otherwise doubtful — it is of course the responsibility of the judiciary to apply the statute as written and not to second-guess the legislature's selection from among competing policies....

117 N.M. at 352, 871 P.2d at 1358. But this Court also cautioned against an overly simplistic application of the plain-meaning rule, stating that "it is part of the essence of judicial responsibility to search for and effectuate the legislative intent — the purpose or object — underlying the statute." Id. at 353, 871 P.2d at 1359.

{11} Therefore, when presented with a question of statutory construction, we begin our analysis by examining the language utilized by the Legislature, as the text of the statute is the primary indicator of legislative intent. See State v. Rivera, 2004-NMSC-001, ¶ 10, 134 N.M. 768, 82 P.3d 939; High Ridge Hinkle Joint Venture v. City of Albuquerque, 1998-NMSC-050, ¶ 5, 126 N.M. 413, 970 P.2d 599. We also consider the statutory subsection in reference to the statute as a whole and read the several sections

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together so that all parts are given effect. High Ridge Hinkle, 1998-NMSC-050, ¶ 5, 126 N.M. 413, 970 P.2d 599. We must...