Chase Home for Children v. New Hampshire Div. for Children, Youth & Families

• Decision Date: 22 November 2011
• Docket Number: No. 2010–548.,2010–548.
• Parties: CHASE HOME FOR CHILDREN and another v. NEW HAMPSHIRE DIVISION FOR CHILDREN, YOUTH AND FAMILIES.
• Court: New Hampshire Supreme Court

162 N.H. 720

34 A.3d 1195

CHASE HOME FOR CHILDREN and another

v.NEW HAMPSHIRE DIVISION FOR CHILDREN, YOUTH AND FAMILIES.

No. 2010–548.

Supreme Court of New Hampshire.

Argued: Sept. 15, 2011.Opinion Issued: Nov. 22, 2011.

Orr & Reno, P.A., of Concord (Lisa Snow Wade and Rachel Aslin Goldwasser on the brief, and Ms. Wade orally), for the plaintiffs.

Michael A. Delaney, attorney general (Nancy J. Smith, senior assistant attorney general, and Rebecca L. Woodard, assistant attorney general, on the brief, and Ms. Smith orally), for the State.

DUGGAN, J.

The defendant, the New Hampshire Division for Children, Youth and Families (DCYF), appeals the order of the Superior Court ( Sullivan, J.) to pay $3,553,479.55 to the plaintiffs, Chase Home for Children, Child & Family Services, Hannah House, NFI North, Odyssey House, Orion House and Pine Haven Boys Center. We affirm.

I. Facts

This dispute concerns rates that DCYF paid the plaintiffs in fiscal years 2004, 2005 and 2006. It has been ongoing for over five years, and has already been the subject of two administrative appeals and two opinions of this court. See Petition of Chase Home for Children, 155 N.H. 528, 926 A.2d 287 (2007); Petition of N.H. Div. for Children, Youth, & Families, 155 N.H. 577, 926 A.2d 273 (2007). The facts below are taken from those opinions, as well as the record and the superior court opinions that are the subject of this appeal.

The plaintiffs are residential childcare providers (the providers) who provide residential placements on behalf of the State to children who have been adjudicated as delinquents, see RSA ch. 169–B (2002 & Supp.2010); children who have been abused, see RSA ch. 169–C (2002 & Supp.2010); and children found to be in need of services, see RSA ch. 169–D (2002 & Supp.2010). The defendant, DCYF, is the division of the New Hampshire Department of Health and Human Services (DHHS) responsible for providing residential childcare services.

In 2003, DCYF and the providers entered into Provider Service Agreements (PSAs) that covered the period from July 1, 2003 to June 30, 2004, and contained automatic renewal clauses. Each PSA outlines the services to be provided and requires the payment rate for those services to be set in accordance with New Hampshire Administrative Rule, He–C 6422 (He–C 6422). The rates cover board and care and are computed on a per diem basis for each child. For children who are non-Medicaid beneficiaries, DCYF pays the full board and care rate. For children who are Medicaid beneficiaries, DCYF pays the full board and care rate less the private non-medical institution rate (PNMI), which is billed to Medicaid. The PSAs only cover services provided to Medicaid beneficiaries.

DCYF's budget for residential childcare services is part of DHHS's overall budget. As with all department budgets, DHHS's budget is broken down into program appropriation units (PAUs), which are then broken down into class lines. The Child and Family Services PAU funds the services provided by DCYF. Class lines 90, 92 and 93 of that PAU are specifically dedicated to paying for residential childcare services.

In fiscal year (FY) 2004, DCYF told the providers that “due to our current fiscal situation, [DCYF] will not be able to approve any increase in residential rates.” The providers asked DCYF to reconsider, claiming that the FY 2004 rates were inconsistent with He–C 6422. DCYF declined the request. Pursuant to RSA 170–G:4–a, the providers appealed the rates to a three-person administrative hearing panel. The hearing panel ruled that the FY 2004 rates were not consistent with the methodology set forth in He–C 6422.

In FY 2005, DCYF again informed the providers that it would not be increasing the rates, citing fiscal concerns. The providers requested a reconsideration of the rates. DCYF refused. The providers appealed the rates to the hearing panel. The hearing panel ruled that the FY 2005 rates were inconsistent with He–C 6422.

The hearing panel's rulings established that DCYF had underpaid the providers by approximately $1.3 million in FY 2004 and $1.6 million in FY 2005, a fact that is not disputed by the parties. The providers requested the hearing panel to order DCYF to compensate them for the underpayment, but the panel ruled that it lacked the authority to do so.

The providers then filed two petitions for writ of certiorari in this court seeking review of the FY 2004 and 2005 hearing panel decisions. The cases were consolidated in Petition of Chase Home for Children, 155 N.H. 528, 926 A.2d 287 (2007). We affirmed the hearing panel determinations that DCYF had underpaid the providers. Id. at 534–35, 926 A.2d 287. However, we held that even though the “[providers] are entitled to retroactive payments at the [appropriately] calculated rates,” the hearing panel does not have the authority to order such payments. Id. at 535, 926 A.2d 287.

While the above dispute was ongoing, the providers appealed the FY 2006 rates to the hearing panel. This time DCYF took the position that it no longer had a legal obligation to set the rates according to He–C 6422 because of budget restrictions imposed by Laws 2005, chapter 176 (Budget Bill) and Laws 2005, 177:117 (Trailer Bill). DCYF argued that under the Budget Bill and Trailer Bill it had to increase the FY 2006 rate by only five percent. It further argued that the five percent increase should be based on the FY 2005 paid rates, not the FY 2005 rates as calculated under He–C 6422. The hearing panel disagreed and ruled that the FY 2006 rates had to be increased by five percent over what the FY 2005 rates should have been under He–C 6422, not the paid rates. DCYF appealed the panel's ruling to this court. In Petition of New Hampshire Division for Children, Youth and Families, 155 N.H. 577, 926 A.2d 273 (2007), we affirmed the panel's decision.

As mentioned above, DCYF consistently pointed to fiscal concerns when it failed to pay the appropriate rates. In FY 2004, 2005 and 2006 there were insufficient funds in class lines 90, 92 and 93 to cover the rates as required by He–C 6422. However, the evidence at trial established that in FY 2004 and 2005 DHHS, as a whole, lapsed a significant amount of money to the general fund. An internal DHHS letter showed a total lapse of approximately $61 million, while a document produced for trial by Stephen Mosher, an employee of DHHS, showed a total lapse of approximately $70 million.

To cover fiscal shortfalls, a State agency can transfer money between class lines and PAUs. Such transfers require the permission of the fiscal committee and the Governor and Council. The record shows that DHHS routinely requests and receives permission to transfer funds. The record here also indicates that approximately $39 million of the aforementioned lapse was available for transfer, an amount that could have fully covered the FY 2004 and 2005 rates. In spite of this, DHHS did not request permission to transfer funds into class lines 90, 92 and 93. The record, though, does not indicate whether there was a significant lapse in FY 2006 that could have covered those rates.

In our prior opinions, we declined to address “what further remedies, if any, [were] available to the [providers], such as whether they [can] obtain relief in a civil action in superior court.” Petition of N.H. Div. for Children, Youth & Families, 155 N.H. at 584, 926 A.2d 273, accord Petition of Chase Home for Children, 155 N.H. at 535, 926 A.2d 287. Eventually, the providers did seek such relief. In 2008, they filed a complaint against DCYF in superior court, seeking damages for the underpayments. Specifically, they alleged breach of contract, breach of the implied covenant of good faith and fair dealing, unconstitutional taking without just compensation, and violations of RSA chapters 169–B, 169–C and 169–D, and associated laws.

Prior to trial, the Superior Court ( Sullivan, J.) denied DCYF's motion for summary judgment. The court first addressed the providers' breach of contract claim. DCYF argued that no contracts existed. The providers responded that the PSAs are express contracts for services for Medicaid children, and that the parties' course of dealing for services for non-Medicaid children created implied-in-fact contracts. The court ruled that the PSAs are express contracts, but that more facts were needed to determine whether implied-in-fact contracts existed. The court also rejected DCYF's argument that the statute of limitations barred some of the providers' contract claims.

DCYF next asserted that the providers failed to allege sufficient facts to support their good faith and fair dealing claim. The providers' claim rested on DCYF's refusal to reimburse the providers after the hearing panel determined that DCYF had underpaid them. The court found that there were genuine issues of material fact on this claim.

Next, DCYF argued that the providers' unconstitutional taking claim must fail on summary judgment because, among other things, the providers voluntarily accepted referrals from DCYF. The court did not agree. It held that there were genuine issues of material fact as to the taking claim.

DCYF also argued that RSA chapters 169–B, 169–C and 169–D do not create a private cause of action for the providers' underpayment claim. The court ruled that a private cause of action does exist because “the right to appeal granted by RSA 170–G:4–a would be rendered meaningless if there was no way to enforce the results of the appeal process, and ... the legislature could not have intended such a result.” DCYF went on to argue that, nevertheless, any private cause of action is barred by sovereign immunity. The court disagreed, ruling that because the “statutes have addressed [DCYF's] liability, ... the state has waived sovereign immunity.” The court also ruled that RSA 491:8 waives the State's sovereign immunity for breach of contract claims.

Finally, relying upon Part I, Article 37 of the New...