Medical Arts Clinic, P.C. v. Franciscan Initiatives, Inc., s. 940297

CourtUnited States State Supreme Court of North Dakota
Citation531 N.W.2d 289
Docket Number940198,Nos. 940297,s. 940297
PartiesMEDICAL ARTS CLINIC, P.C., a North Dakota Professional Corporation, Plaintiff and Appellee v. FRANCISCAN INITIATIVES, INC., a Colorado Corporation, Defendant, Third-Party Plaintiff and Appellee v. Allen C. HOBERG and Trinity Medical Center, Third-Party Defendants and Appellants. TRINITY MEDICAL CENTER, Applicant and Appellant v. MEDICAL ARTS CLINIC, INC. and St. Joseph's Hospital, Respondents and Appellees. Civ.
Decision Date09 May 1995

Jon W. Backes (argued), McGee, Hankla, Backes & Wheeler, Ltd., Minot, for plaintiff, respondent and appellee Medical Arts Clinic, P.C.

Leo F.J. Wilking (argued), Nilles, Hansen & Davies, Ltd., Fargo, for defendant, third-party plaintiff and appellee Franciscan Initiatives, Inc.

John C. Kapsner (argued), Kapsner & Kapsner, Bismarck, for respondent and appellee St. Joseph's Hosp.

Edward E. Erickson (argued), Asst. Atty. Gen., Atty. Gen.'s Office, Bismarck, for third- party defendant and appellant Allen C. Hoberg.

Daniel S. Kuntz (argued), Zuger Kirmis & Smith, Bismarck, and Robert J. Lamont (no appearance), Lamont & Skowronek, Minot, for third-party defendant, applicant and appellant Trinity Medical Center.

LEVINE, Justice.

We consolidate two appeals from two different district court judgments because they involve interrelated issues about discovery procedures in administrative proceedings. See Matter of Estate of Hansen, 458 N.W.2d 264 (N.D.1990).

Trinity Medical Center and Administrative Hearing Officer Allen C. Hoberg appeal from a district court judgment, the Honorable Gary A. Holum, which prohibited Hoberg from enforcing a discovery order and from imposing discovery sanctions against Franciscan Initiatives in an administrative proceeding. Trinity also appeals from a district court judgment, the Honorable Gerald H. Rustad, which denied Trinity's application under N.D.C.C. Sec. 28-32-09(7) for an order directing Medical Arts Clinic and St. Joseph's Hospital to produce information for the same administrative proceeding.

We hold that hearing officers have statutory authority to make initial administrative discovery decisions, including the resolution of trade-secret claims. We also hold that, after administrative remedies have been exhausted, the hearing officer's decision on those trade-secret claims is subject to judicial review in an appeal from a final agency decision, an application for enforcement under N.D.C.C. Sec. 28-32-09(7), or, in the limited circumstances of this case, a writ of prohibition. We further hold that judicial review of the hearing officer's trade-secret decision is limited by the abuse-of-discretion standard. We reverse both district court judgments and remand for proceedings consistent with this opinion.


Franciscan applied under N.D.C.C. ch. 23-17.2 for a certificate of need to construct a medical office building adjacent to St. Joseph's in Minot. Franciscan and Medical Arts executed a lease agreement in which Medical Arts agreed to be the principal tenant in the building. Other prospective tenants included physicians employed by Franciscan's sister corporation, St. Joseph's. The North Dakota State Health Council, under the auspices of the State Department of Health and Consolidated Laboratories, conditionally approved Franciscan's application, subject to petition for reconsideration. Trinity, a competitor of Medical Arts and St. Joseph's, petitioned the Health Council under N.D.C.C. Sec. 23-17.2-11 for reconsideration of Franciscan's application.

The State Health Officer requested appointment of an independent hearing officer, and the Office of Administrative Hearings designated Hoberg as hearing officer for the administrative proceeding. Hoberg approved Trinity's written petition for discovery of information from Franciscan, St. Joseph's, and Medical Arts. See N.D.C.C. Sec. 28-32-09(5); N.D.A.C. Sec. 98-02-02-06(1). Hoberg also approved Trinity's written petition for subpoenas for production of documentary evidence from Medical Arts and St. Joseph's, neither of whom were parties in the administrative proceedings. See N.D.C.C. Sec. 28-32-09(2); N.D.A.C. Sec. 98-02-02-07. Franciscan, St. Joseph's and Medical Arts provided Trinity with certain information, but refused to answer some of Trinity's discovery requests, asserting a trade-secret privilege under N.D.R.Evid. 507. St. Joseph's and Medical Arts did not seek a protective order from Hoberg, see N.D.A.C. Sec. 98-02-02-06(7), and did not ask him to modify or quash the subpoenas. See N.D.A.C. Sec. 98-02-02-07. Trinity then applied to the district court under N.D.C.C. Sec. 28-32-09(7) for an order enforcing the administrative subpoenas issued by Hoberg to Medical Arts and St. Joseph's. That application was ultimately heard by Judge Rustad on March 3, 1994.

Meanwhile, Trinity requested Hoberg to compel Franciscan to produce certain tenant-specific lease information about the building, and Franciscan sought a protective order, asserting the requested information was a privileged trade secret. On December 28, 1993, Hoberg issued a discovery order granting Trinity's motion to compel Franciscan to produce the tenant-specific lease information and denying Franciscan's motion for a protective order. Hoberg concluded

"Whether Franciscan intends to offer the entire lease as evidence or not, it is relevant and discoverable. Franciscan should not be allowed to claim a privilege as to these documents because they are essential to a determination of the relevant issues in this matter. To withhold the information would be an injustice to the full disclosure and open discussion attendant to the certificate of need laws. The full terms of the lease agreement and related documents must be set forth and subject to examination at the hearing."

Claiming its tenant-specific lease information was privileged, Medical Arts sued Franciscan in district court to enjoin it from disclosing the information to Trinity. Franciscan did not oppose Medical Arts' request, instead, asking the court to rule "as may be just and equitable in the circumstances." After an evidentiary hearing, Judge Holum ruled that the tenant-specific lease information was a trade secret not necessary to resolve the issues raised in Franciscan's application for a certificate of need. Judge Holum enjoined Franciscan from disclosing the tenant-specific lease information to Trinity.

Franciscan then asked Hoberg to vacate or to modify the administrative discovery order. Hoberg refused, concluding that the injunction did not control the administrative proceeding, because: (1) it did not restrict or limit the hearing officer, who was not a party to that action, and (2) the proper method for district court review of an administrative discovery order was by appeal from the final agency decision, or by application for enforcement under N.D.C.C. Sec. 28-32-09(7).

Franciscan then brought a third-party complaint against Trinity and Hoberg in the action before Judge Holum, seeking to prohibit Hoberg from enforcing the administrative discovery order. Franciscan alleged that, by refusing to recognize Medical Arts' trade-secret claim, Hoberg acted illegally and in excess of the power and authority delegated to a hearing officer. Judge Holum ruled that

"By failing to adhere to this Court's recognition of a privilege for trade secret information under Rule 507 of the North Dakota Rules of Evidence, as claimed by Medical Arts Clinic, by ignoring the Court's orders ... which prohibited Franciscan from disclosing the financial data at issue, and by refusing to relieve Franciscan from the duty of complying with his discovery order, Hoberg acted in an unlawful manner and in excess of his statutorily delegated powers and authority."

Judgment was entered enjoining Hoberg from ordering Franciscan to disclose Medical Arts' tenant-specific lease information and from imposing any sanctions against Franciscan for its failure to disclose the information in the administrative proceeding.

Meanwhile, on March 3, 1994, Judge Rustad held an evidentiary hearing on Trinity's application under N.D.C.C. Sec. 28-32-09(7) for an order enforcing the administrative subpoenas issued to Medical Arts and St. Joseph's. Except for certain minor items, Judge Rustad denied Trinity's application, concluding that the requested information constituted privileged trade secrets under N.D.R.Evid. 507. Judgment was entered denying Trinity's application for enforcement of the subpoenas.

While both district court actions were pending, Hoberg held an administrative hearing on Franciscan's application for a certificate of need. On May 24, 1994, the Health Council adopted Hoberg's recommendation to continue the administrative proceeding pending final disposition of the discovery and evidentiary issues in the two district court actions, because "a complete and meaningful decision" could not be reached without evidence that was not in the record.

Trinity and Hoberg have appealed from the injunction issued by Judge Holum, and Trinity has appealed from the judgment by Judge Rustad.


Franciscan, St. Joseph's, and Medical Arts have moved to dismiss both appeals on the ground that the Fifty-fourth Legislative Assembly's enactment of Senate Bill 2460 which repeals the certificate of need law effective August 1, 1995, has made the appeals moot.

We do not give advisory opinions, and if issues raised on appeal have become moot, we will generally dismiss the appeal. E.g., Gosbee v. Bendish, 512 N.W.2d 450 (N.D.1994). An appeal is moot when an appellate court is unable to provide effective relief because of a lapse of time, or the occurrence of related events. E.g., Bolinske v. North Dakota State Fair Association, 522 N.W.2d 426 (N.D.1994), cert. denied, --- U.S. ----, 115 S.Ct. 1315, 131 L.Ed.2d 197 (1995). However, an appeal is not moot if the controversy is one of great public interest and involves the authority and power of public...

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