Lht Capital, LLC. v. Indiana Horse Racing

• Decision Date: 23 October 2008
• Docket Number: No. 49A02-0712-CV-1149.,49A02-0712-CV-1149.
• Citation: 895 N.E.2d 124
• Parties: LHT CAPITAL, LLC., Appellant-Plaintiff, v. INDIANA HORSE RACING COMMISSION, Indianapolis Downs, LLC, Oliver Racing, LLC, Duff Taylor Investments, LLC, and Ross J. Mangano, Appellees-Defendants.
• Court: Indiana Appellate Court

895 N.E.2d 124

LHT CAPITAL, LLC., Appellant-Plaintiff, v. INDIANA HORSE RACING COMMISSION, Indianapolis Downs, LLC, Oliver Racing, LLC, Duff Taylor Investments, LLC, and Ross J. Mangano, Appellees-Defendants.

No. 49A02-0712-CV-1149.

Court of Appeals of Indiana.

October 23, 2008.

James Bopp, Jr., Barry A. Bostrom, Bopp Coleson & Bostrom, Terre Haute, IN, Attorneys for Appellant.

Indiana Horse Racing Commission, Judy L. Woods, Paul D. Vink, Bose McKinney & Evans, Indianapolis, IN, Indianapolis Downs, LLC, J. Lee McNeely, McNeely Stephenson Thopy & Harrold, Shelbyville, IN, Attorneys for Appellee.

OPINION ON REHEARING

BROWN, Judge.

LHT Capital, LLC ("LHT") petitions for rehearing of a published opinion in which we affirmed the trial court's grant of a motion to dismiss for lack of subject matter jurisdiction. LHT Capital v. Ind. Horse Racing Comm., 891 N.E.2d 646 (Ind.Ct.App.2008). We held that LHT had failed to exhaust its administrative remedies by failing to raise the constitutionality and legality of 71 Ind. Admin.Code § 11-1-13(d) ("Emergency Rule") before the Commission and that LHT's failure to exhaust its administrative remedies was not excused based upon futility or the fact that LHT was arguing facial invalidity and unconstitutionality.

In its petition for rehearing, LHT does not appear to challenge the holding that it failed to exhaust its administrative remedies. Rather, LHT argues that the reasoning in the opinion conflicts with Indiana Supreme Court precedent regarding the exceptions to the exhaustion of administrative remedies requirement. LHT's arguments are incorrect.

A. Futility.

We held in the opinion:

The exhaustion of administrative remedies may be excused if the exercise would be futile. M-Plan[, Inc. v. Indiana Comprehensive Health Ins. Ass'n, 809 N.E.2d 834, 839 (Ind.2004).] However, "the exhaustion requirement . . . should not be dispensed with lightly on grounds of `futility.'" Id. "To prevail upon a claim of futility, `one must show that the administrative agency was powerless to effect a remedy or that it would have been impossible or fruitless and of no value under the circumstances.'" [Johnson v. Celebration Fireworks, Inc., 829 N.E.2d 979, 984 (Ind.2005)] (quoting M-Plan, 809 N.E.2d at 840).

LHT, 891 N.E.2d at 654. We rejected LHT's futility argument as follows:

LHT argues that presentation of the constitutionality and legality of the Emergency Rule to the Commission would have been futile because the Commission's counsel had informed LHT that the Commission had "declined to hear any challenge to the validity and constitutionality of its emergency rule and transfer tax." Appellant's Brief at 16. Again, there is no evidence in the record of the alleged discussion between the Commission's counsel and LHT's counsel. See supra note 4. We remind LHT that "[i]t is well settled that matters outside the record cannot be considered by this court on appeal." Schaefer [v. Kumar, 804 N.E.2d 184, 187 n. 3 (Ind.Ct.App.2004), trans. denied.] LHT has failed to demonstrate that presentation of the issue to the Commission was futile. See, e.g., Celebration Fireworks, 829 N.E.2d at 984 (rejecting the appellant's futility argument and noting that "the mere fact that an administrative agency might refuse to provide the relief requested does not amount to futility").

Id.

On rehearing, LHT argues that presentation of the constitutionality of the Emergency Rule to the Commission was futile because the agency was "incompetent to decide constitutional issues. . . ." Petition for Reh'g at 7. However, on appeal, LHT argued that presentation of the issue to the Commission was futile because "the Commission had already communicated to LHT [through the Commission's counsel] that it declined to hear any challenge to the validity and constitutionality of its emergency rule and transfer tax." Appellant's Brief at 16. LHT attempts to change its argument on rehearing, which it is not permitted to do. See, e.g., Fields v. State, 179 Ind.App. 421, 425, 386 N.E.2d 184, 186 (1979) (holding that any issue raised for the first time in a petition for rehearing is waived).

B. Legality and Constitutionality.

In the opinion, we held:

Under some circumstances, the Indiana Supreme Court has concluded that a litigant may bypass the exhaustion of administrative remedies where "a statute is void on its face," and "if an agency's action is challenged as being ultra vires and void." Ind. Dep't of Envtl. Mgmt. v. Twin Eagle LLC, 798 N.E.2d 839, 844 (Ind.2003). However, "[e]ven if the ground of the complaint is the unconstitutionality of the statute, which may be beyond the agency's power to resolve, exhaustion of administrative remedies may still be required because administrative action may resolve the case on other grounds without confronting broader legal issues." Id.; see also Celebration Fireworks, 829 N.E.2d at 982.

LHT, 891 N.E.2d at 654-655.

On rehearing, LHT argues that this holding conflicts with the Indiana Supreme Court's holding in Twin Eagle. LHT argues that we reversed the two sentences, resulting in the imposition of "a condition on the exception that destroys the exception." Petition for Reh'g at 2. LHT misinterprets our opinion and the Indiana Supreme Court's decisions. The opinion is consistent with the Indiana Supreme Court's decisions on exhaustion of administrative review.

While, in general, exhaustion of administrative remedies is required, if the party challenges the constitutionality or legality of the statute or regulation then exhaustion may not be required. Under LHT's interpretation, exhaustion of administrative remedies is not required any time a party claims that a statute or regulation is void. That is simply not the case. Additionally, LHT's interpretation would ignore the Indiana Supreme Court's repeated holding that even where "the ground of the complaint is the unconstitutionality of the statute, which may be beyond the agency's power to resolve, exhaustion of administrative remedies may still be required because administrative action may resolve the case on other grounds without confronting broader legal issues." Celebration Fireworks, 829 N.E.2d at 982.

It is hornbook administrative law that potential plaintiffs must first exhaust their administrative remedies before seeking judicial relief. Indiana State Bd. of Public Welfare v. Tioga Pines Living Center, Inc., 575 N.E.2d 303, 307 (Ind.Ct.App. 1991). However, there are three recognized exceptions to this rule: direct resort to the courts is justified where (1) compliance with the rule would be futile, (2) the statute is charged to be void on its face, or (3) irreparable injury would result. Id.; State Bd. of Tax Com'rs v. Ispat Inland, Inc., 784 N.E.2d 477, 483 (Ind.2003) ("In a few exceptional instances, however, a party may gain judicial review without satisfying the prerequisite. The leap is sometimes justified where pursuit of administrative remedies would be futile, where strict compliance would cause irreparable harm, and where the applicable statute is alleged to be void on its face.").

The Indiana Supreme Court held in Twin Eagle that, under some circumstances, a litigant will be excused from the exhaustion of administrative remedies requirement where the litigant is raising a constitutional issue.

Even if the ground of the complaint is the unconstitutionality of the statute, which may be beyond the agency's power to resolve, exhaustion of administrative remedies may still be required because administrative action may resolve the case on other grounds without confronting broader legal issues. Ordinarily, an administrative agency must resolve factual issues before the trial court acquires subject matter jurisdiction. But exhaustion of administrative remedies is not required if a statute is void on its face, and it may not be appropriate if an agency's action is challenged as being ultra vires and void. More generally, if an action is brought upon the theory that the agency lacks the jurisdiction to act in a particular area, exhaustion of remedies is not required. To the extent the issue turns on statutory construction, whether an agency possesses jurisdiction over a matter is a question of law for the courts.

Twin Eagle, 798 N.E.2d at 844 (internal citations omitted).

Similarly, in Celebration Fireworks, the Indiana Supreme Court held that a fireworks seller was required to exhaust its administrative remedies prior to seeking judicial review even though it argued that the Fire Marshall's requirement was "ultra vires and void." 829 N.E.2d at 983. The Court again noted that even where "the ground of the complaint is the unconstitutionality of the statute, which may be beyond the agency's power to resolve, exhaustion of administrative remedies may still be required because administrative action may resolve the case on other grounds without confronting broader legal issues." Id. at 982. The Court also emphasized that, although a valid claim that the statute is void may "obviate the need to go through the administrative process, . . . that statement standing alone does not provide a basis for avoiding administrative review." Id. at 983. See also M-Plan, Inc. v. Indiana Comprehensive Health Ins. Ass'n, 809 N.E.2d 834 (Ind.2004) (rejecting the HMO's argument that exhaustion of administrative remedies was not required because the challenged assessment methodology was both unauthorized and unconstitutional).

Many Indiana Supreme Court cases have required exhaustion of administrative remedies despite an argument that a statute or regulation is void or...