Vt. State Auditor v. OneCare Accountable Care Org., 21-AP-271

Docket Nº21-AP-271
Citation2022 VT 29
Case DateJuly 01, 2022
CourtUnited States State Supreme Court of Vermont

2022 VT 29

Vermont State Auditor, Douglas R. Hoffer
v.

OneCare Accountable Care Organization, LLC, d/b/a OneCare Vermont

No. 21-AP-271

Supreme Court of Vermont

July 1, 2022


On Appeal from Superior Court, Washington Unit, Civil Division Robert A. Mello, J.

Thomas J. Donovan, Jr., Attorney General, and Joshua R. Diamond, Deputy Attorney General, Montpelier, and Andrew C. Boxer of Boxer Blake &Moore PLLC, Springfield, for Plaintiff-Appellant.

Ritchie E. Berger, Shapleigh Smith, Jr. and Anne B. Rosenblum of Dinse P.C., Burlington, for Defendant-Appellee.

PRESENT: Reiber, C.J., Eaton, Carroll and Waples, JJ., and Grearson, Supr. J. (Ret.), Specially Assigned

WAPLES, J.

¶ 1. In February 2021, the Vermont State Auditor of Accounts, Douglas Hoffer, filed a complaint alleging that defendant OneCare Accountable Care Organization, LLC, had breached various provisions in its contract with the Department for Vermont Health Access (DVHA) by denying the Auditor's requests for OneCare's employee payroll and benefits records for fiscal years (FY) 2019 and 2020. The civil division granted OneCare's motion to dismiss, concluding that the Auditor lacked contractual or statutory authority to demand the records, and the Auditor appealed. We affirm.

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¶ 2. The Auditor made the following allegations in his complaint. Vermont has adopted a statewide health care delivery and payment system referred to as the All-Payer ACO Model. This model relies on private-sector health-care providers voluntarily working together as part of what is called an Accountable Care Organization (ACO). The goal of the model is to reduce health-care spending and improve patient outcomes.

¶ 3. OneCare is a Vermont limited-liability company. It is the only ACO in Vermont. It was founded by and includes the University of Vermont Medical Center, Dartmouth-Hitchcock, a dozen other hospitals and more than one hundred additional participating providers. OneCare serves insureds covered by Blue Cross and Blue Shield of Vermont, MVP, and Medicare. It also administers a portion of Vermont's Medicaid program under a contract with DVHA. OneCare's anticipated budget for FY 2020 exceeded $1.2 billion and was estimated to impact approximately 250,000 people.

¶ 4. OneCare is required to obtain budget approval from the Green Mountain Care Board. The Board reviews OneCare's administrative expenses, including payroll and benefits. OneCare's budget approval filings for FY 2020 showed a significant increase in payroll expenses. In FY 2019, OneCare submitted a budget identifying $8.7 million in salary and benefits. That figure increased to $11.8 million in OneCare's FY 2020 budget.

¶ 5. In March 2020, the Auditor emailed OneCare requesting an explanation for this increase, as well as documents establishing payroll for FY 2020. OneCare responded that the increase was due to "repatriating positions that were split with the Adirondack ACO in 2019, converting a legal services contract to an employed position, annualizing positions that were scheduled mid-year hires in 2019, and regular annual comp increases for all staff filling vacancies." OneCare did not provide the documents requested by the Auditor. The Auditor believed that the response did not explain inconsistencies with OneCare's prior payroll filings. The Auditor again requested the payroll documents, asserting that he was entitled to the information under OneCare's

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contract with DVHA. OneCare's CEO responded that salary information would be submitted to the Board in due course and that outside of those filings, the requested information was exempt from disclosure under the Public Records Act.

¶ 6. The Auditor then filed this breach-of-contract action in the civil division. The Auditor alleged that he was entitled to access OneCare's accounting records, including payroll records, under his statutory authority and the terms of OneCare's contract with DVHA. He asked the court for specific performance in the form of an order directing OneCare to turn over all payroll and benefits records for calendar years 2019 and 2020.

¶ 7. OneCare moved to dismiss the Auditor's complaint pursuant to Vermont Rule of Civil Procedure 12(b)(1) for lack of standing. OneCare argued that the Auditor's powers were limited by statute and that its authority did not extend to an ACO like OneCare. It contended that the OneCare-DVHA contract did not give the Auditor the right to obtain the records. It further argued that DVHA's right to access records under the contract was limited to records pertaining to performance under the agreement, and payroll information did not fall within this category.

¶ 8. The Auditor responded that the contract granted authorized representatives of any state agency access to the accounting and financial records of OneCare to the extent they related to the business done with other public entities under the contract. He argued that accounting records included payroll records. He further argued that the Auditor was an authorized agent of the state, and an intended beneficiary of the contract, because the Auditor is empowered by statute to conduct audits of any "department, institution, [or] agency of the State." See 32 V.S.A. §§ 163, 167(a). Finally, he argued the court should treat OneCare as the functional equivalent of an "agency" that is subject to the Auditor's authority under 32 V.S.A. § 167(a).

¶ 9. After a hearing, the trial court granted OneCare's motion to dismiss. The court concluded that standing was the wrong framework for resolving the issue before it, because OneCare was essentially arguing that the Auditor lacked a legally cognizable claim under the

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contract and relevant statutes. The court therefore treated OneCare's motion as a motion to dismiss for failure to state a claim under Rule 12(b)(6).[1] The court found that the OneCare-DVHA contract, which was attached to the complaint, did not define who was an "authorized representative" entitled to demand financial records from OneCare. However, the Auditor did not appear to be included in that definition because the contract did not state that the Auditor was an authorized representative or otherwise mention the Auditor. The court concluded that no other source of authority would empower the Auditor to demand the production of documents within the scope of the contract. It reasoned that the powers of the Auditor were defined and limited by statute, which authorized the Auditor to audit departments, institutions, and agencies of the state. The court concluded that a private entity that contracted with the state did not fall within this definition. The court declined the Auditor's invitation to apply the functional-equivalency test used by some courts in the public-records context to find that OneCare was effectively a state agency for purposes of 32 V.S.A. § 167(a). The court reasoned that the case was not a publicrecords case and furthermore noted that this Court had not adopted the functional-equivalency test in that context. Because it found no authority for the Auditor to demand the records from OneCare, it granted the motion to dismiss. This appeal followed.

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¶ 10. On appeal, the Auditor argues that the unambiguous language of the OneCare-DVHA contract requires OneCare to produce the requested records to the Auditor. He asserts that as a constitutional officer elected for the purpose of performing governmental audits, he is an "authorized representative or agent of the State" and is an intended third-party beneficiary of the OneCare-DVHA contract. In the alternative, he argues that the term "authorized representative" is ambiguous and that the court erred in dismissing the case instead of permitting discovery into extrinsic evidence regarding the contract's meaning. He further argues that we should treat OneCare as the functional equivalent of a state agency that is subject to the Auditor's authority under 32 V.S.A. § 167(a). As discussed below, we find these claims to be without merit.[2]

¶ 11. We review a decision granting a motion to dismiss without deference to the trial court. Birchwood Land Co. v. Krizan, 2015 VT 37, ¶ 6, 198 Vt. 420, 115 A.3d 1009. We will affirm dismissal for failure to state a claim only if "it appears beyond doubt that there exist no facts or circumstances that would entitle the plaintiff to relief." Amiot v. Ames, 166 Vt. 288, 291, 693 A.2d 675, 677 (1997) (quotation omitted). In analyzing a motion to dismiss, "[w]e assume as true all facts as pleaded in the complaint, accept as true all reasonable inferences derived therefrom, and assume as false all contravening assertions in the defendant's pleadings." Birchwood Land Co., 2015 VT 37, ¶ 6.

¶ 12. The Auditor's primary argument on appeal is that the contract between OneCare and DVHA unambiguously gives him the right to access OneCare's accounting records. The Auditor claims that he is an intended third-party beneficiary of the contract because he is the

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official empowered to carry out audits of state agencies, and the purpose of the quoted provisions is to facilitate financial oversight by the state.

¶ 13. A contract may create obligations to a third party, which the third party may enforce against the promisor. Sutton v. Vt. Reg'l Ctr., 2019 VT 71A, ¶ 64, 212 Vt. 612, 238 A.3d 608; see Restatement (Second) of Contracts § 304 (1981) ("A promise in a contract creates a duty in the promisor to any intended beneficiary to perform the promise, and the intended beneficiary may enforce the duty."). However, a third party is not an intended beneficiary of a contract, even if they derive a benefit from the contract, unless the contract language demonstrates that the contracting parties intended to benefit that specific third party. McMurphy v. State, 171 Vt. 9, 18, 757 A.2d 1043, 1050 (2000). To determine whether a third party is an intended beneficiary of a contract, we look to the intent of the...

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