Rosewood Services, Inc. v. Sunflower Diversified Services, Inc.
| Decision Date | 08 September 2003 |
| Docket Number | Case No. 02-2140-JWL. |
| Parties | ROSEWOOD SERVICES, INC. and TAMMY HAMMOND, Plaintiffs, v. SUNFLOWER DIVERSIFIED SERVICES, INC. d/b/a CENTRAL KANSAS DEVELOPMENTAL DISABILITIES ORGANIZATION and JAMES JOHNSON, Defendants. |
| Court | Kansas Supreme Court |
Plaintiffs Tammy Hammond and Rosewood Services, Inc. ("Rosewood") brought this action pursuant to 42 U.S.C. § 1983 alleging that defendants Sunflower Diversified Services, Inc. d/b/a Central Kansas Developmental Disabilities Organization ("Sunflower") and James Johnson violated their constitutional right to equal protection of the laws and retaliated against plaintiffs for exercising their First Amendment rights. The matter is presently before the court on defendants' motion for summary judgment (Doc. 82) and plaintiffs' motion to exclude portion of expert testimony (Doc. 83).
As explained below, defendants' motion for summary judgment is granted in part and denied in part. Specifically, defendants' motion is granted with respect to all of Ms. Hammond's claims because Ms. Hammond lacks standing to pursue those claims. The court further grants summary judgment on Rosewood's claims that accrued before the applicable limitations period. Defendants' motion is otherwise denied.
The court will grant plaintiffs' motion to exclude portion of expert testimony because the parties' briefs reveal that this motion is, as a practical matter, unopposed.
Sunflower is designated pursuant to K.S.A. §§ 19-4001 to -4016 as a community mental retardation facility by the county commissions of Barton, Rice, Pawnee, Rush, and Stafford counties in Kansas. As such, it provides a wide variety of statutorily specified services to persons with developmental disabilities residing in those counties. Among numerous other things, as a community mental retardation facility, Sunflower may establish consulting and/or referral services in conjunction with related community health, education, and welfare services. It is undisputed that, under Kansas law, the county governments could provide these services themselves if they chose not to contract with a community mental retardation facility such as Sunflower. Most of the members of Sunflower's board of directors are appointed by the county commissions of those five counties.
In 1995, the Kansas legislature enacted the Developmental Disabilities Reform Act, now codified at K.S.A. §§ 39-1801 to -1811(commonly known as "the DD Reform Act"). When the DD Reform Act was enacted, it provided that any community mental retardation facility (i.e., Sunflower) would become the new community developmental disability organization ("CDDO") for its existing service area and, by virtue of its designation as a CDDO, would be imbued with certain statutory authorities and responsibilities. Thus, Sunflower became the CDDO for Barton, Rice, Pawnee, Rush and Stafford counties. CDDO designations and defined services areas can be changed only with the express approval of the State Department of Social and Rehabilitation Services ("SRS") and only after following various procedures outlined in K.A.R. 30-64-11 to -13.
The DD Reform Act requires SRS to disburse funds to CDDOs such as Sunflower that are appropriate for "the coordination and provision of community services." CDDOs are then responsible for determining whether applicants for services in their defined service areas are developmentally disabled as defined by state law, and whether those applicants meet the financial requirements for receiving government-funded services.
Under the DD Reform Act, Sunflower also serves as the "single point of application or referral" for any developmentally disabled person in Sunflower's five-county service area who wants services under the state's home and community-based waiver program. In Sunflower's referral function, it provides information to eligible persons regarding the services and providers available in the community.
CDDOs also have management, oversight, and quality assurance responsibilities for the Medicaid home and community-based waiver programs developed by the State of Kansas under federal social security laws. Administrative rules and regulations adopted by SRS mandate that Sunflower comply with the provisions of K.A.R. 30-64-01 to -34. Among other things, these regulations require Sunflower to adopt policies and procedures for the delivery of services to developmentally disabled persons in Sunflower's service area, subject to approval by SRS.
Statewide, approximately $8.4 million is paid to CDDOs annually to administer the Kansas developmental disabilities system. Of that total, $2.2 million comes from state general fund revenue, $2.7 million from county mill levies, and $3.5 million from federal Medicaid administrative funding. In 2000, Sunflower received $335,150 as discretionary income in county mill levy proceeds, $145,530 as discretionary income in state aid payments, and $170,764 in state funds for CDDO administration plus the ability to "match" those dollars for 40% in additional federal funds. Sunflower receives its income almost exclusively from public funds and does not pay taxes.
The DD Reform Act provides that CDDOs such as Sunflower are to contract (except under limited circumstances) with entities from which a developmentally disabled person chooses to receive services. K.S.A. § 39-1806(c)(5); K.A.R. 30-64-21. These individuals or entities are commonly referred to as "affiliates" because they must have an affiliation agreement with a CDDO (or be a CDDO) in order to operate. K.S.A. § 39-1803(b). They are also commonly referred to as "community service providers." K.S.A. § 39-1803(e). The affiliates, i.e., service providers, in Sunflower's five-county area include Sunflower itself Pathways Res-Care ("Pathways"), plaintiff Rosewood Services, Inc. ("Rosewood"), and, during most of the time period relevant to this lawsuit, included an entity referred to as LJW. Sunflower is the only one of these service providers that serves the dual role of being both a service provider and a CDDO.
Mr. Johnson is Sunflower's executive director and has been since 1980. As such, he is responsible for carrying out Sunflower's CDDO responsibilities associated with the DD Reform Act and state regulations. He also manages the day-to-day operations of Sunflower's provider activities.
In March of 1996, Ms. Hammond went to work for Sunflower as a case manager. In mid-1996 and early 1997, Sunflower was threatened with the loss of its provider license because of disputes that arose between Sunflower and SRS regarding the quality of Sunflower's programs. In late 1997 and early 1998, parents and guardians of Sunflower consumers approached Ms. Hammond and encouraged her to open her own provider agency. In early 1998, she advised Mr. Johnson that she intended to pursue starting her own provider agency. Mr. Johnson told Ms. Hammond that he could "throw a wrench" into her plans if he wanted to. Ms. Hammond borrowed money and received an economic development grant to start up her own competing service provider business, Rosewood. Ms. Hammond is the principal, sole shareholder, and executive officer of Rosewood, which is a for-profit corporation2 that provides community-based services to persons with developmental disabilities.
On April 21, 1998, the Sunflower board of directors, in Sunflower's role as a CDDO, adopted a new transition planning policy. Under the new policy, for each client who wished to change service providers, the case manager was required to fill out a form, answer a list of questions, and submit it to Sunflower. The policy required the forms to be completed in order for the transition to be effective. The forms were reviewed twice per month pursuant to a set schedule that effectively provided an approximately one-month delay in allowing consumers to change providers. The policy also required Sunflower to approve the transfer after interviewing the consumer and guardian. It is uncontroverted that Sunflower's adoption of this transition policy violated K.A.R. 30-64-21.
On April 29, 1998, Sunflower entered into an affiliation agreement with Rosewood. The agreements between Sunflower and each of its affiliates are similar. One arguably relevant provision, at least in the 1998 agreements, differed somewhat. Sunflower's contract with Rosewood stated that Sunflower "is the single contact for county commissioners with regard to funding for individuals with developmental disabilities" (emphasis added), whereas Sunflower's contract with Pathways stated that Sunflower "is the primary contact for county commissioners with regard to funding for individuals with developmental disabilities" (emphasis added).
Ms. Hammond left Sunflower on May 1, 1998, and began operating Rosewood on May 3. At that time, a significant number of clients who had previously received services from Sunflower decided to seek services from Rosewood instead. For comparison purposes, LJW became a Sunflower affiliate in 1997 and served 7-12 clients when it was in business. Pathways became a Sunflower affiliate in 1998 and serves approximately 40 clients. Rosewood serves approximately 90 clients. Sunflower's first corporate financial audit shortly after Rosewood began doing business reported that Sunflower expected revenue losses in the first calendar year of approximately $1.1 million and further noted that if management did not stop this revenue loss it could have a "severe near-term impact" on Sunflower's finances and operations.
For the first time, Sunflower initiated a charge for photocopying client records. LJW is another service provider that was also begun by a former Sunflower employee. No such copy charge had been in place when LJW became a Sunflower affiliate in 1997.
On May 15, 1998, Sunflower denied funding to three consumers who decided they wanted the new day services offered by...
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