Washington Ass'n of Child Care Agencies v. Thompson

• Decision Date: 10 March 1983
• Docket Number: No. 4832-9-II,4832-9-II
• Parties: WASHINGTON ASSOCIATION OF CHILD CARE AGENCIES, et al., and All Other Members of the Class of Child Care Agencies Similarly Situated, Appellants, v. Gerald THOMPSON, Secretary of the Department of Social and Health Services of the State of Washington; and the State of Washington, Respondents.
• Court: Washington Court of Appeals

Page 235

34 Wn.App. 235

660 P.2d 1129

WASHINGTON ASSOCIATION OF CHILD CARE AGENCIES, et al., and All Other Members of the Class of Child Care Agencies Similarly Situated, Appellants, v. Gerald THOMPSON, Secretary of the Department of Social and Health Services of the State of Washington; and the State of Washington, Respondents.

No. 4832-9-II.

Court of Appeals of Washington Division 2.

March 10, 1983.

Review Denied June 3, 1983.

H. Scott Holte, Everett, for appellants.

David Minikel, Asst. Atty. Gen., Dept. of Social and Health Services, Olympia, for respondents.

PETRIE, Judge.

Plaintiff Washington Association of Child Care Agencies (WACCA), on behalf of the class of private agencies who are licensed by the State of Washington to provide care for and supervision of abused, dependent, neglected and/or disturbed children, appeals a judgment dismissing the agencies' action for damages which they filed on November 22, 1978 against the Secretary of the Department of Social and Health Services (DSHS) and the State of Washington. Plaintiff agencies contend they have been grossly underpaid for the services they rendered for 6 years preceding the filing of their complaint. We affirm.

Plaintiff agencies provide group foster care for children whom they voluntarily accept upon referral by DSHS after DSHS has found those children eligible for care. DSHS is authorized to "purchase care" for those children by "using properly approved private agency services for the actual care and supervision of such children" insofar as those agency services are available. RCW 74.13.031(8). ¹

The parties appear to disagree substantially on how the issues on appeal should be framed. Accordingly, at the outset we are forced to examine somewhat critically the nature of plaintiff agencies' theories of recovery as set forth in their pleadings and in the trial record as a whole.

In its first cause of action (applicable to this appeal), WACCA alleged that each plaintiff agency "has in the past and continues to furnish care for and supervision of children at the requests of Defendants and pursuant to RCW 74.13.031" and that defendants have not paid reasonable rates for such services. Plaintiff agencies allege defendants' actions (1) violate the laws of the State of Washington, including but not limited to RCW 74-13.031; (2) violate plaintiffs' rights to due process of law guaranteed by the state and federal constitutions; and (3) "have taken the private property of the individual Plaintiffs and the members of the Plaintiff Class without just compensation," in violation of plaintiffs' rights constitutionally guaranteed under Article I, Sec. 16 of the State Constitution. Nevertheless, plaintiffs and defendants have stipulated that all agencies were required to and did execute written contracts annually with DSHS for the time period through June 30, 1978. Representative sample copies of those contracts illustrate that, for a specified monthly dollar amount for each child accepted, each plaintiff agency agreed to furnish the program of services as contemplated by RCW 74.13 and as compiled in DSHS's "Directory of Voluntary Child-Caring Institutions, Agencies and Public Children's Institutions". Furthermore, the record also establishes that for the period commencing July 1, 1978, plaintiff agencies refused to sign the written contracts (again specifying a monthly rate of payment for each agency). Though some agencies continued to refuse signing these contracts, others did sign them after this action was certified as a class action, and all agencies which did accept children referred to them by DSHS (with or without a signed contract) were paid, for the months in which the service was rendered, in accordance with the rates newly promulgated by DSHS.

As to those agencies which executed written contracts, the rule of law generally applicable is that in the absence of a breach of that contract (which is not alleged here), each party is bound by the terms of that contract and may not bring an action relating to the same matter on a theory of "contract" implied by law, in contravention of the express contract. Chandler v. Washington Toll Bridge Auth., 17 Wash.2d 591, 137 P.2d 97 (1943). Furthermore, those agencies which refused to execute written contracts but nevertheless accepted children for care following DSHS's referral knew at the time a child was accepted, the amount of DSHS's offer of payment. No such agency was bound to accept any child referred to it. Accordingly, acceptance of a child for care constituted a contract implied in fact, which in turn was an express contract. Johnson v. Whitman, 1 Wash.App. 540, 463 P.2d 207 (1969).

In their trial brief plaintiff agencies seek to avoid application of this generally applicable rule of law because (1) when "the amount of compensation to be paid is reserved for determination by one party to a contract, and the intent is that the amount shall be reasonable, and the contracts have been performed, the court shall fix the reasonable monetary amount" and (2) in any event, the contracts "insofar as they fix the amount of compensation to be paid by DSHS," are void against public policy because those amounts are not reasonable as mandated by RCW 74.13.031(8).

At trial plaintiff agencies repeatedly asserted that any contracts they entered into were executed on their part as a result of mutual mistake, misrepresentation or fraud, or duress as defined by common law or business compulsion. After the conclusion of the trial, counsel for WACCA sent an explanatory letter to the trial court expressing the view that for the post-1978 period as distinct from the pre-1978 period, plaintiffs "flatly rejected" the rate established by the department; and accordingly, their "cause of action for the post-1978 period is based solely upon an implied or quasi contract to recover the reasonable value of services rendered to and received by" DSHS. In other words, they asserted, "[t]here was no meeting of the minds, whatever, as to 'rate'." On appeal they assert recovery should be allowed for both time periods on the basis of quantum meruit because no rates established by DSHS at any time were "reasonable." Indeed, plaintiffs assert that all these "rates" violated both state and federal law (1) by failing to reimburse plaintiffs for the total reasonable costs incurred by plaintiffs in rendering the services provided, and (2) by taking into consideration the fact that most of plaintiff agencies received financial support from various private sources. Indeed, if we understand plaintiffs' position correctly, they appear essentially to be challenging the basis upon which the department prepares and presents its biennial budgetary requests to the Legislature.

Cutting a swath through all of plaintiffs' assertions, we hold simply (1) the department at all times paid the rate contractually agreed upon by each individual agency and DSHS; (2) the department's statutory "duty" at all times was to enter the marketplace and purchase these services at rates reasonably available for the variable types of services needed and to request funds from the Legislature based upon that availability; (3) the Legislature at all times knew plaintiff agencies were not being reimbursed by the State for the total reasonable cost of those services; (4) the Legislature never intended the rate setting mechanism to be a "reasonable cost reimbursement system;" (5) no federal law or regulation prohibited DSHS from doing precisely what it did; and (6) had DSHS paid rates contrary to those provided by express contract or in excess of appropriations made by the Legislature, it would have acted not only unreasonably but also unlawfully.

Because the trial court so eloquently expressed these same views in its memorandum opinion, we quote extensively from it--

The statute in question is rather indefinite and no definition of the term "reasonable" is contained therein nor are standards set forth which assist the court in determining the legislature's intention. Several things are clear, however, from a plain reading of RCW 78.13.031(7) [now 74.13.031(8) ]. First, it is obvious that the rates are to be established by the Department and not by the agencies providing the child care. Secondly, it is clear that the statute with which we are here dealing does not establish a cost reimbursement system such as is currently extant in the case of nursing home providers. It should be noted, at this point, that there is a substantial difference, in this court's judgment, between a payment system which reimburses for costs and one that provides only that the purchaser pay a reasonable rate. The principal distinction is that in a cost reimbursement system the vendor basically establishes the rates whereas in a system such as we have in the present case the rate is established by the purchaser. This can be a significant difference since what is viewed as a non-reimbursable cost for program enhancement today becomes a part of the total cost of care and supervision in tomorrow's budget. In short, in a cost reimbursement system the costs can conceivably escalate at a rate much greater than that caused by inflation with the purchaser seemingly powerless to control the increase.

It is not for this court to speculate as to why the legislature provided for a system that requires only the payment of reasonable rates rather than a cost reimbursement system. Perhaps, the legislators anticipated that the non-profit child care agencies, with their long history of eleemosynary activities, would be willing and able to provide these services for less than cost. If that was the case perhaps that assumption is no longer correct. However, viewing the case not as a legislator but as a court it is the court's conclusion that the rates the agencies are to be paid, as they have been established by the Department pursuant to RCW 74.13.031, are reasonable rates to pay when one views them in...