Signature Health Ctr., LLC v. State

• Decision Date: 15 December 2011
• Citation: 935 N.Y.S.2d 357,2011 N.Y. Slip Op. 09058,92 A.D.3d 11
• Parties: SIGNATURE HEALTH CENTER, LLC, Appellant, v. STATE of New York, Respondent.
• Court: New York Supreme Court — Appellate Division

2011 N.Y. Slip Op. 09058
92 A.D.3d 11
935 N.Y.S.2d 357

SIGNATURE HEALTH CENTER, LLC, Appellant,
v.
STATE of New York, Respondent.

Supreme Court, Appellate Division, Third Department, New York.

Dec. 15, 2011.

[935 N.Y.S.2d 358]

Baker, Sanders, Barshay, Grossman, Fass & Muhlstock, Garden City (Craig B. Sanders of counsel), for appellant.

Eric T. Schneiderman, Attorney General, Albany (Victor Paladino of counsel), for respondent.

Before: PETERS, J.P., LAHTINEN, STEIN, McCARTHY and GARRY, JJ.

PETERS, J.P.

[92 A.D.3d 11] Appeal from a judgment of the Court of Claims (Hard, J.), entered June 2, 2010, upon a decision of the court in favor of defendant.

[92 A.D.3d 12] In 1999, claimant was approved by the Department of Health (hereinafter DOH) to operate as a licensed diagnostic and treatment center and thereafter provided services to Medicaid recipients under defendant's Medicaid program. As a newly approved provider without cost experience, claimant initially received a “budgeted” rate of reimbursement per threshold patient visit based on its projected costs. Pursuant to DOH regulations, this rate was subject to a retroactive adjustment based upon actual costs incurred during the first full fiscal year of operation ( see 10 NYCRR 86–4.19[b] ). In 2001, claimant submitted a cost report to DOH for the 2000 calendar year and sought an adjustment of its rate. After the cost report was reviewed, endorsed and approved by DOH, a new threshold rate was calculated, which was approximately $35 per threshold visit higher than the initial budgeted rate. This new rate was then certified by the Division of Budget in December 2001. In May 2002, claimant sought a further rate adjustment based upon a revised cost report for 2000, which was thereafter approved by DOH and certified by the Division of Budget in December 2002. However, DOH did not publish the revised rates and refused to reimburse claimant in accordance with them.

Claimant thereafter commenced a CPLR article 78 proceeding seeking to compel DOH to publish the revised reimbursement rates and to release the payments owed to it. Supreme Court (Sheridan, J.) found that, inasmuch as the new rates had been approved and certified, the posting of such rates was a ministerial act required to be performed by law. Upon the court's order that DOH publish the revised reimbursement rates and make [92 A.D.3d 13] all payments due to claimant in accordance with those rates, DOH paid approximately $3 million in retroactive reimbursement.

Claimant then commenced this action against defendant seeking consequential damages, including lost profits, arising from defendant's delay in publishing and paying the revised reimbursement rates. The Court of Claims granted claimant's motion for summary judgment on the issue of liability, finding that the judgment in the CPLR article 78 proceeding collaterally estopped defendant from relitigating the

[935 N.Y.S.2d 359]

issue of ministerial negligence ( see Signature Health Ctr., LLC v. State of New York, 23 Misc.3d 1103(A), 2009 N.Y. Slip Op. 50559(U), 2009 WL 865519 [2009] ). Following a trial on damages, the court directed the parties to brief the impact of the Court of Appeals' recent decisions in McLean v. City of New York, 12 N.Y.3d 194, 878 N.Y.S.2d 238, 905 N.E.2d 1167 [2009] and Dinardo v. City of New York, 13 N.Y.3d 872, 893 N.Y.S.2d 818, 921 N.E.2d 585 [2009], which clarified and arguably changed the law with respect to governmental immunity for ministerial and discretionary actions. Finding that the law as set forth in McLean and Dinardo differed from that which it applied in previously deciding the issue of liability, the Court of Claims reexamined the issue of liability in light of those decisions and concluded that defendant could not be liable for failure to perform a ministerial action unless it owed a special duty to claimant and that, under these circumstances, a special duty existed because Public Health Law § 2807 implicitly created a private cause of action for the benefit of Medicaid treatment providers. On the issue of damages, however, the court found that claimant failed to prove that its alleged lost profits resulted directly from the delayed reimbursement, and denied the additional claims for consequential damages based upon a failure of proof. Claimant appeals. ¹

Initially, we note that defendant was not aggrieved by the dismissal of the complaint and, therefore, had no right to file a cross appeal ( see Parochial Bus Sys. v. Board of Educ. of City of N.Y., 60 N.Y.2d 539, 544, 470 N.Y.S.2d 564, 458 N.E.2d 1241 [1983] ). However, given the adverse finding by the Court of Claims concerning liability, defendant is entitled to raise that issue as an alternative ground for affirmance ( see id. at 545, 470 N.Y.S.2d 564, 458 N.E.2d 1241; [92 A.D.3d 14] Matter of Save the Pine Bush v. Zoning Bd. of Appeals of Town of Guilderland, 220 A.D.2d 90, 94, 643 N.Y.S.2d 689 [1996], lv. denied 88 N.Y.2d 815, 651 N.Y.S.2d 16, 673 N.E.2d 1243 [1996]; Panetta v. Tonetti, 182 A.D.2d 977, 978, 582 N.Y.S.2d 303 [1992], lv. denied 80 N.Y.2d 756, 588 N.Y.S.2d 823, 602 N.E.2d 231 [1992]; see also CPLR 5501[a][1] ). Accordingly, we begin by addressing the question of whether there exists a special duty between defendant and claimant by virtue of Public Health Law § 2807, such that defendant may be subject to liability for its improper withholding of Medicaid reimbursement payments.

“Government action, if discretionary, may not be a basis for liability, while ministerial actions may be, but only if they violate a special duty owed to the plaintiff, apart from any duty to the public in general” ( McLean v. City of New York, 12 N.Y.3d at 203, 878 N.Y.S.2d 238, 905 N.E.2d 1167). A special relationship is formed “ ‘(1) when the municipality violates a statutory duty enacted for the benefit of a particular class of persons; (2) when it voluntarily assumes a duty that generates justifiable reliance by the person who benefits from the duty; or (3) when the municipality assumes positive direction and control in the face of a known, blatant and dangerous safety violation’ ” ( id. at 199, 878 N.Y.S.2d 238, 905 N.E.2d 1167, quoting Pelaez v. Seide, 2 N.Y.3d 186, 199–200, 778 N.Y.S.2d 111, 810 N.E.2d 393 [2004]; see

[935 N.Y.S.2d 360]

Garrett v. Holiday Inns, 58 N.Y.2d 253, 261–262, 460 N.Y.S.2d 774, 447 N.E.2d 717 [1983]; Lewis v. State of New York, 68 A.D.3d 1513, 1514, 892 N.Y.S.2d 583 [2009] ). Here, claimant relied only on the first of these categories, claiming that Public Health Law § 2807, which governs reimbursement of Medicaid expenses incurred by participating providers, creates a statutory duty for the benefit of the class of which...