Homecare Pharmacy, Inc. v. John T. Douglas et al.

ARKANSAS COURT OF APPEALS

NOT DESIGNATED FOR PUBLICATION

K. MAX KOONCE, II, JUDGE

DIVISION III

HOMECARE PHARMACY, INC.

APPELLANT

V.

JOHN T. DOUGLAS, et al.

APPELLEES

CA 00-196

November 8, 2000

APPEAL FROM THE PULASKI COUNTY CIRCUIT COURT

[CA 00-196]

HON. JOHN WARD

CIRCUIT JUDGE

AFFIRMED

This is an appeal filed by Homecare Pharmacy, Inc. (Homecare), from the order entered in Pulaski County Circuit Court granting the appellees' motion to dismiss appellant's complaint for declaratory judgment. We find that the trial court's dismissal was justified in light of the appellant's failure to exhaust all available administrative remedies, and therefore affirm.

Appellant, Homecare, is a for-profit corporation and a subsidiary of Olivetan Benedictine Sisters, Inc. (an Arkansas non-profit corporation). Homecare is a sister corporation of St. Bernard's Hospital. St. Bernard's is an Arkansas non-profit hospital and subsidiary of Olivetan Benedictine Sisters, Inc. (Sisters).

Sisters became interested in operating a retail pharmacy and formed a corporation called HomeMed IV. HomeMed IV is a subsidiary of Regional Healthcare Services, Inc. (which is a subsidiary of St. Bernard's Hospital). St. Bernard's Hospital is a subsidiary of Sisters. HomeMed IV applied to the Arkansas State Board of Pharmacy (State Pharmacy Board) for a retail pharmacy

permit in June 1997. The State Pharmacy Board denied the application on the grounds of language found in Ark. Code Ann. § 17-92-607 (1975) . Arkansas Code Annotated. section 17-92-607 states:

It shall be unlawful for any nonprofit, tax exempt, or governmentally funded hospital to acquire direct or indirect interest in or otherwise hold directly or indirectly a licensed pharmacy permit pursuant to the provisions of § 17-92-405, for the sale at retail of drugs and medicines.

The legislature's goal with this statutory language is to prevent a non-profit hospital from purchasing drugs at a discount for its own use, and then diverting those drugs to its retail pharmacy for sale. The Pharmacy Act specifically grants the State Pharmacy Board the authority to promulgate "such reasonable regulations" as are necessary to carry out the purpose of the Pharmacy Act.

Sisters then formed another corporation, Homecare. In anticipation of questions from the State Pharmacy Board regarding the relationship between Homecare and St. Bernard's Hospital, Sisters executed an Agreement between Homecare and St. Bernard's Hospital to answer any concerns that St. Bernard's Hospital could be perceived as having an interest in any retail pharmacy permit obtained by Homecare.

Homecare made an application for a retail pharmacy permit with the State Pharmacy Board on September 22, 1998. A State Pharmacy Board hearing was held on February 10, 1999, at which time Homecare's application was denied pursuant to Ark. Code Ann. § 17-92-607. The appellant notes that this ruling was made despite the fact that Homecare is a for-profit corporation and not a non-profit hospital, and the State Pharmacy Board failed to make any finding that St. Bernard's Hospital had a direct or indirect interest in the pharmacy permit application made by Homecare. The appellant appealed the State Pharmacy Board decision to circuit court pursuant to Ark. Code Ann. § 25-15-212 (1967) on the grounds that the Board's decision was arbitrary and capricious andnot supported by substantial evidence.

The appeal was assigned to the Pulaski County Circuit Court, Second Division. The status of that appeal is not clear from the record in this case.

On appeal in this case is Homecare's suit against the State Pharmacy Board in Pulaski County Circuit Court (Third Division, the honorable John Ward presiding) asking for a declaration that Ark. Code Ann. § 17-92-607 is unconstitutionally over broad and vague. The appellees moved to dismiss the declaratory judgment action on the grounds that such action was barred pursuant to Rule 12(b)(8) of the Arkansas Rules of Civil Procedure on the grounds that another action between the same parties was pending and because Homecare had failed to exhaust its administrative remedies by bringing the constitutional argument before the State Pharmacy Board.

The appellees' motion to dismiss was granted pursuant to Rule 12(b)(8) and for failure to exhaust administrative remedies. The appeal before this court stems from that decision. Appellant argues two points on appeal: first, that the trial court erred in its application of Rule 12(b)(8); and second, that Homecare was not required to exhaust administrative remedies before the State Pharmacy Board before bringing a constitutional challenge to the statute.

As a preliminary point, the standard of review governing this matter requires that the trial court's decision be reviewed in the light most favorable to the appellant using an abuse-of-discretion standard. King v. Whitfield, 339 Ark. 176, 178-79, 5 S.W.3d 21, 23-24 (1999). Additionally, this Court will view the facts alleged in the complaint as true and insure that the trial judge did not look beyond the allegations in the complaint in its decision to grant the motion to dismiss. Hames v. Craven, 332 Ark. 437, 440-41, 966 S.W.2d 244, 247-48 (1998).

First, the appellant's claim that Ark. Code Ann. § 17-92-607 is unconstitutional is premature. The State Pharmacy Board on remand, or any court on appeal, could decide Homecare is notgoverned by the statutory language of the law in question. Therefore, the constitutional issue would be moot, as Homecare would not have the proper standing to challenge the constitutionality of the statutory language. In response to this premature argument, Homecare attempts to argue that their challenge is to the constitutionality of the statute on its face, specifically that language of the statute is vague. However, it is clear from the record and abstract submitted by the appellant that the controversy goes beyond mere vagueness of the statute and involves the State Pharmacy Board's application of the statute. The administrative remedies, once properly exhausted, could resolve the matter of the State Pharmacy Board's alleged improper application of the statute, and at the same time dispose of Homecare's need (and/or ability) to pursue the constitutional issue.

Second, the Arkansas Supreme Court has held that requests for declaratory relief should be denied where issues are not ripe or there are ongoing administrative or judicial proceedings where the issue may be resolved. In UHS of Arkansas, Inc. v. Charter Hospital of Little Rock, 297 Ark. 8, 12, 759 S.W.2d 204,206 (1988), the court ruled that it is an abuse of discretion for one court to exercise jurisdiction over a request for declaratory relief when the same issues could be determined in another action currently pending between the same parties. Further, there is precedent barring the pursuit of a declaratory judgment action as to matters that could have been raised in an administrative hearing, but were not. Riley v. City of Corning, 294 Ark. 480, 483, 743 S.W.2d 820, 821-22 (1988). In Riley, the court ruled that a person who feels aggrieved by a statute cannot challenge it by way of an action for declaratory judgment when other remedies were available, but none of them were pursued.

The Supreme Court has barred a declaratory judgment actions when there are other ongoing proceedings between the same parties. Ragon v. Great American Indemnity Co., 224 Ark. 387, 273 S.W.2d 524 (1954). Further, the Arkansas Supreme Court has held that a party cannot raiseconstitutional challenges for the first time on appeal from the decision of an administrative agency. McQuay v. Arkansas State Bd. Of Architects, 337 Ark. 339, 989 S.W.2d 499 (1999); Ford v. Arkansas Game & Fish Comm'n, 335 Ark. 245, 979 S.W.2d 897 (1998). The appellant attempts to distinguish this precedent by noting that it is not raising the constitutional issue for the first time on appeal, but is raising the constitutional issue for the first time in an action for declaratory judgment. Therefore, the appellant argues, the precedent is not controlling and this is an issue of first impression, or in the alternative, the precedent should be overruled.

The Ford case is too similar to be distinguished, and it is well settled that the we must follow the precedent set by the Arkansas Supreme Court. In Ford, there was a hearing regarding Ford's alleged possession of game out of season, pursuant to the Administrative Procedures Act. However, before the hearing was complete, Ford filed for a declaratory judgment action, contending the that the statute was unconstitutional as applied to him. The trial court dismissed Ford's declaratory judgment action on the ground that Ford had failed to exhaust his administrative remedies. On appeal, Ford argued that he was not required to exhaust his administrative remedies because he was raising a constitutional claim that he alleged the agency was incapable of rendering a decision. After consideration of the Ford case, the Supreme Court held:

Ford was not entitled to file a declaratory judgment action...before he exhausted his administrative remedies before the commission. Instead of filing a declaratory judgment action, Ford should have raised his constitutional arguments before the Commission, and then appealed the Commission's final ruling to circuit court pursuant to [the Administrative Procedures Act].

Ford v. Arkansas Game & Fish Comm'n, 335 Ark. at 251-52, 979 S.W.2d at 605-607.

As a final matter, the appellant relies on the precedent set in Lincoln v. Arkansas Pub. Serv. Comm'n, 313 Ark. 295, 854 S.W.2d 330 (1993). In Lincoln, the only issue before the Commission was a question of the constitutionality of the statute enabling the Commission. The Commissiondismissed the claim, stating that it lacked the authority to declare the statute unconstitutional. The supreme court affirmed the dismissal. However, in Lincoln, unlike the present case, there was not an attempt to seek a declaratory judgment while the administrative proceeding was still in progress.

In conclusion, appellant was required to first exhaust the administrative process, including presenting any constitutional claims, to the administrative agency prior to proceeding with a declaratory judgment action to have the applicable law declared unconstitutional. Accordingly, we affirm the trial court's order dismissing the declaratory judgment action for this reason, and need not address the issue raised regarding the application of Rule 12(b)(8) of the Arkansas Rules of Civil Procedure.

Affirmed.

Stroud and Griffen, JJ., agree.