Vali Convalescent and Care Institutions v. Division of Health Care Financing

• Decision Date: 27 July 1990
• Docket Number: No. 880434-CA,880434-CA
• Citation: 797 P.2d 438
• Parties: VALI CONVALESCENT AND CARE INSTITUTIONS, a Utah corporation, Plaintiff, Appellant, and Cross-Appellee, v. DIVISION OF HEALTH CARE FINANCING, Defendant, Appellee, and Cross-Appellant.
• Court: Utah Court of Appeals

Page 438

797 P.2d 438

VALI CONVALESCENT AND CARE INSTITUTIONS, a Utah corporation Plaintiff, Appellant, and Cross-Appellee, v. DIVISION OF HEALTH CARE FINANCING, Defendant, Appellee, and Cross-Appellant.

No. 880434-CA.

Court of Appeals of Utah.

July 27, 1990.

Spencer E. Austin, Julia C. Attwood (argued), Parsons, Behle & Latimer, Salt Lake City, for plaintiff, appellant, and cross-appellee.

R. Paul Van Dam, State Atty. Gen., Brian L. Farr (argued), Asst. Atty. Gen., for defendant, appellee, and cross-appellant.

Before BILLINGS, GARFF and ORME, JJ.

OPINION

ORME, Judge:

Vali Convalescent and Care Institutions ("Vali") appeals the judgment of the third district court affirming the final determination of the executive director of the Department of Health. This appeal concerns Vali's entitlement to interest as a matter of law and whether Vali settled its interest claim. The appeal also poses the question of how a reviewing court should regard the decision of an agency head which is inconsistent with that of the agency's hearing officer who, alone, took testimony. We reverse in part, affirm in part, and order remand to the Department of Health for a limited purpose.

FACTS

At all times relevant to this appeal, Vali was the owner and operator of nursing homes which provided services to Medicaid recipients in Utah. The Utah Department of Health, Division of Health Care Financing ("DOH"), is responsible for making payments to facilities which provide services to Medicaid recipients.

In January of 1980, Vali sought reimbursement from DOH for funds expended on Medicaid recipients in 1978 and 1979. DOH contested the amounts claimed by Vali and refused to pay those amounts. Soon after, the Bureau of Medicaid Fraud commenced an investigation of Vali. In April of 1982, the Bureau terminated its investigation, concluding there was insufficient evidence of fraud to support criminal charges.

After the Bureau concluded its investigation, the parties began to negotiate the amount owing to Vali. Intermittently throughout 1983, 1984, and the early part of 1985, the parties attempted to resolve their dispute through informal administrative processes. At one point in the negotiations, DOH tendered a check to Vali containing a restrictive endorsement which would have released all claims Vali had against DOH. Vali refused to negotiate the check and an informal hearing was scheduled for February 28, 1985, to resolve the dispute.

Two days prior to the February 28 hearing, an attorney for Vali sent a letter to the executive director of DOH requesting an interim payment of $223,046.66 to Vali. The letter stated, with our emphasis:

[T]his is the absolute minimum that [Vali] will be due under the circumstances. We can then proceed with the informal hearing and any subsequent proceedings to determine if Mr. Brown is due any further monies.

It would appear that [DOH] has had the benefit of funds that rightfully belong to Mr. Brown, for a period in excess of four years. Interest alone on the agreed upon figure would conservatively be $100,000.00.

Informal hearings were held on February 28 and March 20, 1985. During these days, as reflected in the hearing officer's decision, the parties debated over a host of costs, charges, and offsets, basically using the hearing officer as a kind of arbitrator. The figures discussed were exclusively principal amounts. Neither party raised the subject of interest.

Soon after the hearings, the hearing officer issued his decision. That decision, which like the parties' discussions dealt in no way with either the issue or amount of interest, recommended a disposition for each charge and credit in issue. The decision was further refined in subsequent correspondence. Based upon the hearing officer's decision as supplemented by the correspondence, DOH calculated and offered to Vali, in a letter dated April 3, 1985, the amount of $272,362.03.

On about April 4, 1985, DOH delivered a "mutual release" to Vali, which DOH regarded as an appropriate means of implementing the recommended settlement. But, unlike the hearing officer's decision, the release spoke in terms of settling "all claims, ... including interest." Vali refused to sign the release. On April 5, 1985, Vali nonetheless gave a letter to DOH accepting the $272,362.03 settlement figure. Neither DOH's April 3 letter nor Vali's April 5 letter mentioned whether or not interest was included in the settlement amount.

On May 13, the parties met to discuss their conflicting positions on whether the settlement figure was intended to be inclusive of interest owing to Vali. DOH claimed that it was. Vali claimed that it was not. The parties failed to resolve the issue at the May 13 meeting, and determined to adjudicate the interest issue in a formal hearing. However, on about May 14, 1985, DOH again delivered to Vali a "mutual release" purporting to settle all claims between the parties, but omitting a specific reference to interest. Vali refused to sign this second release form.

On May 16, 1985, Vali received a check for $274,223.13 and an accompanying letter from DOH. The letter stated that the amount represented "full settlement of all claims and demands arising from the informal hearings." It also stated that the amount included 6% interest from the date Vali accepted the settlement. The check did not contain a restrictive endorsement. On May 16, 1985, Vali negotiated the check.

Consistent with the parties' agreed method for resolving the interest deadlock, a formal hearing was held in July 1985 before a hearing officer to consider the question of whether Vali had settled and compromised any claim it had to interest when it agreed to the settlement amount of $272,362.03, and in any event whether it lost its claim when it negotiated the May 16, 1985, check. For purposes of the hearing, the parties stipulated to certain basic facts such as the relationship between the parties, the exchange of correspondence between the parties, dates of informal hearings, and the subjects of those hearings. Extensive testimony was also received from a number of witnesses.

The hearing officer adopted the stipulated facts in his written findings and conclusions. In addition to the stipulated facts, the hearing officer found that Vali never considered the matter of interest settled or compromised, that Vali had clearly stated its intent to claim interest prior to the informal hearing, and that DOH knew, or should have known, Vali had not settled its claim to interest. He concluded that the parties had only settled the amount of principal. Furthermore, he concluded that Vali was entitled to interest under the Utah Procurement Code. ¹

The executive director of DOH, after reviewing the record and the findings and conclusions of the hearing officer, purported to sustain his findings of fact ² but overruled his conclusions of law. She concluded that by April 5, 1985, the parties had an enforceable executory contract of settlement which included any claim Vali had to interest. Moreover, she concluded that Vali's negotiation of the May 16, 1985, check amounted to an accord and satisfaction and thus an absolute defense to its claim to interest. ³ Finally, the director concluded that Vali was in any event not statutorily entitled to interest under either the Utah Prompt Payment Act ⁴ or the Utah Procurement Code.

Vali sought review of the executive director's order in third district court pursuant to Utah Code Ann. § 26-23-2 (1984). ⁵ The court affirmed the ultimate decision of the executive director. It concluded that no statutory basis for interest existed and, because the principal sum had been determined through administrative proceedings rather than an actual judgment, Vali could not claim common law prejudgment interest.

Although the district court affirmed the decision of the executive director, it did not accept the executive director's findings and conclusions regarding the settlement issues. Rather, it appears to have seen the basic facts and the other issues much the same as the hearing officer did. The district court reiterated the hearing officer's findings that the parties had, in the informal hearings, settled the principal amount owing but that interest had not been raised or argued. Moreover, it concluded as a matter of law that the actions of the parties did not amount to an accord and satisfaction.

On appeal, Vali argues that we should sustain the district court's conclusions concerning settlement and accord and satisfaction but that we should reverse the district court concerning entitlement to interest. DOH, on the other hand, argues that we should sustain the district court concerning entitlement to interest but reverse concerning the other two issues.

I. STANDARDS OF REVIEW AND RELATED MATTERS

Although we will again consider the applicable standard in the context of each substantive issue dealt with in this opinion, a general overview of the applicable standards of review and some related precepts may prove helpful.

A. Appellate Court Deference

This appeal is taken from the trial court's review of an administrative agency decision. That review was limited to a review of the administrative record. In such cases, we need not accord any particular deference to the decision of the trial court, although we may well find that court's analysis persuasive. Davis County v. Clearfield City, 756 P.2d 704, 710 & n. 8 (Utah Ct.App.1988). Basically, we review the decision of the agency as if judicial review of that decision had been sought directly in this court. Id.

The question of what deference should be accorded to the decision of the administrative agency is more complicated. Different standards apply to different aspects of administrative adjudications. When reviewing an agency's findings of basic fact, courts traditionally accord the findings considerable leeway and only disturb those findings if they are "arbitrary and capricious." USX Corp. v....