Community Care Centers, Inc. v. FSSA

• Decision Date: 22 September 1999
• Docket Number: No. 30A01-9702-CV-62.,30A01-9702-CV-62.
• Citation: 716 N.E.2d 519
• Parties: COMMUNITY CARE CENTERS, INC., and Regency Place of Castleton, Appellants, Ben Hur Home, Inc.; Bradner Village Health Care Center; Bradner Village, Inc.; DHE, Inc.; Houston Development, Inc.; Houston Village, Inc.; Premier Providers, Inc.; and Williamsburg Health Care, Inc., Appellant-Intervenors, v. INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION, Katherine L. Davis, Administrator of the Indiana Family and Social Services Administration, in her official capacity; The Indiana Office of Medicaid Policy and Planning, Kathleen D. Gifford, Assistant Administrator of the Indiana Family and Social Services Administration and Administrator of the Indiana Office of Medicaid Policy and Planning, in her official capacity, Appellees, and Counsel for the Class, Appellee, and Tioga Pines Living Center, Inc., Bloomington Convalescent Center, Inc., Nominal Appellees.
• Court: Indiana Appellate Court

716 N.E.2d 519

COMMUNITY CARE CENTERS, INC., and Regency Place of Castleton, Appellants, Ben Hur Home, Inc.; Bradner Village Health Care Center; Bradner Village, Inc.; DHE, Inc.; Houston Development, Inc.; Houston Village, Inc.; Premier Providers, Inc.; and Williamsburg Health Care, Inc., Appellant-Intervenors, v. INDIANA FAMILY AND SOCIAL SERVICES ADMINISTRATION, Katherine L. Davis, Administrator of the Indiana Family and Social Services Administration, in her official capacity; The Indiana Office of Medicaid Policy and Planning, Kathleen D. Gifford, Assistant Administrator of the Indiana Family and Social Services Administration and Administrator of the Indiana Office of Medicaid Policy and Planning, in her official capacity, Appellees, and Counsel for the Class, Appellee, and Tioga Pines Living Center, Inc., Bloomington Convalescent Center, Inc., Nominal Appellees.

No. 30A01-9702-CV-62.

Court of Appeals of Indiana.

September 22, 1999.

Rehearing Denied November 22, 1999.

William P. Tedards, Jr., Washington, D.C., Steven D. Murphy, DeFur, Voran, Hanley, Radcliff & Reed, Muncie, Indiana, Attorneys for Appellant Community Care Centers, Inc.

Anthony W. Mommer, J. Michael Grubbs, Krieg DeVault Alexander & Capehart, Indianapolis, Indiana, Attorneys for Appellants/Intervenors.

Jeffrey A. Modisett, Attorney General, Jon Laramore, Deputy Attorney General, Indianapolis, Indiana, S. William Livingston, Jr., Mark H. Lynch, Robert D. Wick, Covington & Burling, Washington, D.C., Attorneys for Appellees.

David F. McNamar, Randall R. Fearnow, Janet A. McSharar, Alastair J. Warr, McNamar, Fearnow & McSharar, Indianapolis, Indiana, Michael J. Tosick, Greenfield, Indiana, Attorneys for Appellees/Class Counsel.

OPINION

SULLIVAN, Judge

This appeal arises from the approval of a settlement agreement and the award of Six Million Two Hundred Fifty Thousand Dollars ($6.25 million) in attorney fees in a class action initiated by several skilled nursing facilities and intermediate care facilities which alleged that they were not being properly compensated under the Indiana Medicaid program. Upon appeal, class member Community Care Centers, Inc. (Community Care) and eight class members, who purportedly intervened after the action was certified as a class action, including Ben Hur Home, Inc.; Bradner Village Health Care Center; Bradner Village, Inc.; DHE, Inc.; Houston Development, Inc.; Houston Village, Inc.; Premier Providers, Inc.; and Williamsburg Health Care, Inc. (Intervenors) challenge the settlement agreement. Intervenors also challenge the trial court's order awarding Class Counsel $6.25 million in attorney fees.¹

The matters in issue have a long and convoluted administrative, trial and appellate chronological history in several forums. This lawsuit began on January 24, 1990, when several health care facilities, certified under the Indiana Medicaid program, brought an action in the Hancock County Circuit Court against the Indiana State Board of Public Welfare, the Indiana Department of Public Welfare and Suzanne Magnant, in her capacity as the Administrator of the Indiana Department of Public Welfare (collectively the State).² (Fee R. 118). Indiana State Bd. of Public Welfare v. Tioga Pines Living Center, Inc. (1991) Ind.App., 575 N.E.2d 303,trans. denied [hereinafter Tioga I ]. The Providers filed their complaint under 42 U.S.C. § 1983³ and I.C. XX-X-XX-X, the Uniform Declaratory Judgment Act, claiming that certain aspects of the Medicaid reimbursement scheme, 470 I.A.C. 5-4.1 (Rule 4.1), did not comply with federal and state law and had not been lawfully promulgated. Indiana Bd. of Public Welfare v. Tioga Pines (1993) Ind., 622 N.E.2d 935, 937,cert. denied, 510 U.S. 1195, 114 S.Ct. 1302, 127 L.Ed.2d 654 (1994) [hereinafter Tioga II].⁴ (Fee R. 149-50). As a result, the Providers sought to enjoin the State from implementing Rule 4.1 and to certify the lawsuit as a class action for all similarly situated nursing homes. Tioga I, supra at 306. On May 29, 1990, the trial court certified the Class under Ind. Trial Rule 23(B)(2) and (3) as consisting of 785 health care facilities licensed under I.C. 16-10-4⁵ and certified as skilled nursing facilities and intermediate care facilities, (Fee R. 148, 151, 156), and appointed David F. McNamar of Steers, Sullivan, McNamar & Rogers⁶ and Michael J. Tosick as Class Counsel. (Fee R. 153-54). The trial court granted the petition for a preliminary injunction and ordered the funds, which accrued to the benefit of the Class under the injunction, to be placed in an escrow account. (Fee. R. 156-57); Tioga I, 575 N.E.2d at 306. However, that injunction was later overturned on July 22, 1991, when a panel of this court determined that because the facilities had an adequate remedy at law, the trial court abused its discretion by issuing the preliminary injunction. Id. at 307. Thereafter, the funds which had been held in escrow were released to the State. (Sett. R. 1236).

On October 20, 1990, the law firm of Casson, Harkins and Greenberg, under the direction of the Indiana Health Care Association (IHCA), petitioned and were thereafter granted leave to intervene on behalf of 151 of the Class members who had been participating in similar litigation in state and federal court (Intervenors).⁷ (Supp. R. 619, Sett. R. 2605, Fee R. 2972-76). The purpose of their intervention was to aid Class Counsel in establishing that the Department of Public Welfare's rate-setting criteria violated federal law. (Fee R. 2975, 2978).

Eventually, in February and March of 1991, a trial was conducted on the Class' challenges to Rule 4.1. In March of 1992, the trial court entered final judgment in favor of the Class, concluding that certain aspects of Rule 4.1 violated federal and state law and were not lawfully promulgated. See Indiana State Bd. of Public Welfare v. Tioga Pines (1994) Ind.App., 637 N.E.2d 1306, 1310,

reh'g denied, [hereinafter Tioga III]; Tioga II, supra, 622 N.E.2d 935. While the trial was in progress, the State promulgated regulations establishing a new reimbursement system, 470 I.A.C. 5-4.2⁸ (Rule 4.2) which replaced Rule 4.1 and was to become effective March 29, 1991. (P.I.R. 37-38). As a result, on March 19, 1991, Class Counsel filed a motion to supplement the pleadings and amend the complaint in order to challenge Rule 4.2. (P.I.R. 37, 51-52, 54). In its amended complaint, the Class alleged that the Board of Public Welfare, in promulgating Rule 4.2, failed to comply with the proper procedures. (P.I.R. 58). The complaint further alleged that Rule 4.2 violated federal and state law by establishing a reimbursement system which did not adequately reimburse facilities for the reasonable costs incurred in caring for their residents. (P.I.R. 58-62).

After their motion was granted on March 25, 1991, Class Counsel, with the aid of counsel for the Intervenors, sought to enjoin the implementation of Rule 4.2. (P.I.R. 52, 95). A hearing on the petition to enjoin Rule 4.2 was held on April 8 and 9, 1991. (Fee R. 155, P.I.R. 184-86). During the hearing, both Class Counsel and counsel for Intervenors presented witnesses to show that Rule 4.2 should be enjoined.⁹ (P.I.R. 187-593). In particular, counsel for Intervenors presented accounting experts who incorporated into the State's Medicaid reimbursement software the changes Rule 4.2 would have required. Under the changes, the number of facilities which would not be reimbursed for actual costs would have increased under Rule 4.2. (P.I.R. 396-99, 406-10, 421, 445, 494). Intervenors also presented expert testimony that Rule 4.2 did not comply with applicable federal and state law. (P.I.R. 486-87, 504-05). On May 14, 1991, the trial court recertified the Class under T.R. 23(B)(2), issued a preliminary injunction enjoining the implementation of Rule 4.2 and ordered the State to continue to reimburse the class under Rule 4.1.¹⁰ (P.I.R. 1221; Fee R. 170, 173-74). That injunction was upheld by this court which concluded among other things that the Class had established a reasonable probability of success on the merits. Tioga III, supra, 637 N.E.2d at 1315.

In 1993, the State's appeal of the trial court's order invalidating Rule 4.1 reached our Supreme Court. After assuming jurisdiction over this case and a separate case in which class member Community Care had obtained similar relief under Rule 4.1 from the Blackford Circuit Court,¹¹ the Court reversed the trial courts' decisions and determined that Rule 4.1 had been lawfully promulgated and did not violate federal or state law. See Tioga II, supra, 622 N.E.2d 935

. Our Supreme Court then ordered the Hancock and Blackford Circuit Courts to enter judgment for the State, thereby validating Rule 4.1. Id. at 947. Because the additional funds which had accrued under the Blackford injunctions were paid directly to Community Care, as opposed to being placed in escrow, the State instituted an action in the Delaware Superior Court seeking restitution from Community Care for the difference between the amount Community Care received under the Blackford Circuit Court injunction and the amount they would have received under Rule 4.1. See Community Care Centers, Inc. v. Sullivan (1998) Ind.App., 701 N.E.2d 1234, 1238, trans. denied.

In July of 1994, the class action was removed to the United States District Court for the Southern District of Indiana. (Supp. R. 129-33, Fee R. 177).¹² Following negotiations, Class Counsel and the State submitted for approval a proposed settlement agreement regarding the issues concerning Rule 4.2.¹³ (Sett. R. 1499, Fee R. 177). Pursuant to the agreement, the Class agreed to release the State from any claims that the Medicaid rules, plan or system, which were applied during any period prior to August 1, 1994, violated state or federal law and to waive the right to seek attorney's fees from the State. (Sett. R. 1647-48, 1650). In exchange, the State agreed never to implement Rule 4.2 or seek...