In re Berlin Health & Rehabilitation, Inc.

In re Berlin Health & Rehabilitation, Inc.  (2005-407); 180 Vt. 432; 912 A.2d 449     

2006 VT 109

[Filed 03-Nov-2006]

  NOTICE:  This opinion is subject to motions for reargument under V.R.A.P.
  40 as well as formal revision before publication in the Vermont Reports. 
  Readers are requested to notify the Reporter of Decisions, Vermont Supreme
  Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
  order that corrections may be made before this opinion goes to press.


                                 2006 VT 109

                                No. 2005-407


  In re Appeal of Final Order on Request for         Supreme Court
  Reconsideration of the Cost Report Findings
  for Berlin Health & Rehabilitation, Inc.           On Appeal from
                                                     Agency of Human Services


                                                     May Term, 2006


  David Yacovone, Director

  Gary L. Franklin of Primmer Piper Eggleston & Cramer, PC, Burlington, for
  Appellant.

  Marjorie Power, Montpelier, for Appellee.


  PRESENT:  Reiber, C.J., Dooley, Johnson, Skoglund and Burgess, JJ.

        
   
       ¶ 1.  REIBER, C.J.  Berlin Health & Rehabilitation, Inc., a Vermont
  nursing home facility, appeals pursuant to 33 V.S.A. § 909(a)(1) from the
  Director of the Division of Rate Setting's partial denial of its request
  for reconsideration of the facility's "allowable costs" for 2002.  At issue
  is the disallowance of certain legal fees that Berlin incurred in
  connection with the unionization of its employees.  Specifically, Berlin
  challenges the disallowance of fees incurred in connection with
  unfair-labor-practice (ULP) charges brought by the union, and fees incurred
  for activities related to a decertification election.  As discussed below,
  we conclude that our review of appeals brought under 33 V.S.A. § 909(a)(1)
  is limited to pure questions of law.  Because this case involves unresolved
  disputes of fact and presents mixed questions of fact and law, we remand
  the case to the Division.  Within thirty days of the date of this order,
  Berlin may pursue its appeal to either the superior court or the Secretary
  of the Agency of Human Services as provided by 33 V.S.A. § 909(a)(2), (3).

       ¶ 2.  We begin with a very general overview of the rate-setting
  process involved in this appeal.  The Division provides the Agency of Human
  Services "with special financial, accounting, auditing and related legal
  expertise for the purpose of rate setting."  33 V.S.A. § 902(a).  Pursuant
  to a statutory mandate, id. § 904(a), it has developed procedures for
  determining the rates that will be paid to nursing homes for the care of
  state-assisted individuals.  See "Methods, Standards and Principles for
  Establishing Medicaid Payment Rates for Long-Term Care Facilities," 4 Code
  of Vermont Rules 13 010 001, Vermont Division of Rate Setting Rules
  (hereinafter V.D.R.S.R.).  The rates are designed to be sufficient to
  ensure that quality standards are maintained, subject to payment limits
  developed by rule that aim to encourage the economic and efficient
  operation of nursing homes, among other goals.  33 V.S.A. §§ 906, 907.  

       ¶ 3.  Very generally speaking, nursing home rates are based on the
  allowable costs  identified and reported to the Division by each nursing
  home facility.  See id. § 905; see also id. § 906 (payment rate for each
  facility is the sum of its per diem allowance for each cost category,
  subject to payment limits developed by rule).  To this end, each long-term
  care facility participating in the Vermont Medicaid program must annually
  submit a uniform financial and statistical report (cost report) that covers
  the provider's fiscal year.  See V.D.R.S.R. 3.2.  The Division then
  performs a "uniform desk review" on each cost report to determine the
  adequacy and completeness of the report, the accuracy and reasonableness of
  the data recorded therein, and the allowable costs, and it develops a
  summary of the results of its review.  Id. 3.4(a).  
   
       ¶ 4.  Before the Division issues any findings on a uniform desk
  review, it must serve a draft of its findings on the affected provider. 
  Id. 15.1.  The provider may then request the Division's work papers as well
  as an informal conference with the Division's staff.  Id. 15.1(b), 15.2(a). 
  If an informal conference is held, the Division must thereafter issue an
  "official agency action."  Id. 15.2(b).  An aggrieved provider may then
  file a request for reconsideration, which may also include a request for a
  hearing.  Id. 15.3(a), (d)(1).  Under V.D.R.S.R. 15.3(i), the hearing is
  not subject to the requirements of the Vermont Administrative Procedure
  Act, 3 V.S.A. Chapter 25, but is instead conducted by the Director or his
  or her designee.  Id. 15.3(g).  If the provider so requests, the Division
  staff involved in the official action must appear and testify.  Id. 
  Berlin, the provider in this case, made no such request. 

       ¶ 5.  Once the Director has issued its final order on a request for
  reconsideration, an aggrieved party may file an appeal pursuant to 33
  V.S.A. § 909(a) and V.D.R.S.R. 15.5-15.7.  Section 909(a) provides an
  aggrieved party with three methods of challenging the Director's  decision: 
  (1) a right of direct appeal to this Court; (2) an "appeal de novo to the
  superior court of the county where the nursing home is situated;" or (3) a
  "review by the secretary of human services."  33 V.S.A. § 909(a)(1)-(3). 
   
       ¶ 6.  With this process in mind, we turn to the facts presented here. 
  Given the nature of the record on appeal, discussed in greater detail
  below, the following facts appear to underlie the rate-setting process that
  is in dispute here.  Berlin is a private, for-profit nursing facility that
  participates in the Vermont Medicaid program.  It is managed by CPL
  Subacute, LLC, and it is part of a large multi-national chain of nursing
  homes.  A unionization effort arose at the Berlin facility, which CPL
  opposed.  CPL hired Jackson Lewis, a large national law firm whose
  specialty is employment law, including union avoidance and collective
  bargaining.

       ¶ 7.  In August 2000, Berlin's employees voted to be represented by a
  union.  The first contract was negotiated between October 2000 and January
  2002.  Although the parties agreed to the terms of a one-year contract in
  January 2002, the contract was not executed until August 2002.  During the
  negotiation period, the union filed numerous ULP charges with the National
  Labor Relations Board (NLRB).  In October 2002, a group of employees filed
  a petition to decertify the union.  An election was held in November 2002,
  and the union was retained.  Bargaining on a new contract began in earnest
  in fall 2002, and the parties agreed to the terms of a new three-year
  contract in February 2003.  

       ¶ 8.  During this period, Berlin's reported legal expenses increased
  dramatically.  The bulk of the fees were billed by Jackson Lewis for
  services related to the unionization of Berlin's employees.  From legal
  costs totaling less than $10,000 for the two previous years combined,
  Berlin spent $258,507 on legal services during fiscal year 2000, $174,200
  of which the Division disallowed.  The allowed costs of $84,307 were
  treated as non-recurring contract negotiation costs and amortized over
  three years. 
   
       ¶ 9.  In its 2001 cost report, Berlin claimed legal fees of $201,987. 
  The Division's auditor divided these fees into two categories: services
  that seemed to be related to several ULP charges filed by the union
  ($60,639), and other fees.  He disallowed all of the fees.  On Berlin's
  request for reconsideration, the Director affirmed the auditor's decision
  as to the first set of fees, concluding that Berlin had failed to carry its
  burden of proof that its legal costs relating to the NLRB matters were for
  activities carried out in compliance with the National Labor Relations Act
  as required by relevant regulations.  The Director treated the remaining
  legal fees incurred in 2001 ($138,567) as unallowable collective-bargaining
  costs.  He disallowed these fees on the basis that a reasonable sum had
  already been allowed for the first contract negotiations.  The Director
  found both the hourly rates and the number of hours billed by Jackson Lewis
  excessive.  He did allow one additional hour of preparation time for each
  hour spent in direct negotiations, however, and therefore allowed legal
  costs of $54,960.  These fees were classified as recurring costs, and the
  Director noted that it had been error to treat Berlin's allowable costs in
  2000 as nonrecurring.  Berlin did not appeal from this decision. 

       ¶ 10.  Berlin then submitted the 2002 cost report at issue in this
  appeal, which similarly  included substantial legal fees from Jackson
  Lewis.  In March 2005, the Division sent Berlin draft findings pursuant to
  its uniform desk review of the cost report.  Berlin requested the
  Division's work papers and an informal conference.  In April 2005, the
  Division issued its official action on the informal conference.  Berlin
  then filed a request for reconsideration, accompanied by supporting
  information.  A hearing was held in June 2005, and the record was left open
  for the receipt of additional information until July 2005.
   
       ¶ 11.  In August 2005, the Director issued his decision and final
  order on Berlin's request for reconsideration.  As relevant to this appeal,
  he adopted Berlin's characterization of the various legal fees, and allowed
  fees totaling $74,750.  These costs, which the Director classified as
  nonrecurring, related to the first and second contract negotiations, as
  well as the drafting and implementation of the terms of the first
  agreement.  The Director affirmed the auditor's disallowance of fees that
  related to ULP charges filed by the union, as well as fees incurred for
  activities relating to a decertification election.  Berlin then appealed
  directly to this Court pursuant to 33 V.S.A. § 909(a)(1).  

       ¶ 12.  On appeal, Berlin asserts that the Director committed clear
  error in disallowing the legal fees at issue.  It maintains that the
  Director misapplied the relevant standard in reaching his conclusion, and
  that his decision is not supported by the "uncontroverted" evidence in the
  record.  Berlin also argues that the Director's decision is internally
  inconsistent, and that he failed to make findings necessary to support his
  decision.  Finally, Berlin argues that the legal fees that were allowed
  should not have been characterized as nonrecurring under V.D.R.S.R. 4.3(a). 

       ¶ 13.  In support of its claims of error, Berlin has set forth its
  version of the facts, which differ from the facts found by the Director. 
  As support for its characterization, Berlin cites  "uncontested" testimony
  presented by its witnesses at the ex parte hearing.  Berlin maintains, for
  example, that its goal in hiring Jackson Lewis was "to ensure compliance
  with the law in dealing with the union and to obtain assistance in
  attaining an appropriate economic structure to the labor contract."  The
  Director made no such finding.  Instead, he found that CPL management
  decided to oppose the formation of the union and therefore hired Jackson
  Lewis, whose specialities include union avoidance and collective
  bargaining.(FN1)  Similarly, Berlin asserts that the union "was
  extraordinarily aggressive and demanding in terms of [its] expectations for
  the first contract," and that the union filed ULP charges against Berlin as
  a method of applying pressure during negotiations.  These are not findings
  of fact made by the Director.
   
       ¶ 14.  Berlin's repetition of its view of the facts, which mirrors its
  one-sided presentation, illustrates the difficulty inherent in considering
  this case without an adversarial proceeding below.  Our review is also
  hampered by the fact that the Director's designee oversaw the
  reconsideration hearing and authored both the final order being challenged
  on appeal, as well as the appellee's brief.  We cannot rely on the
  assertions that Berlin's evidence was uncontroverted because by rule and by
  choice, Berlin was the only party to offer evidence at the hearing.  We
  cannot discern from the record what the facts are in this case, and we
  consequently cannot engage in appellate review of the Director's decision. 
  We conclude that, while 33 V.S.A. § 909(a)(1) provides a right of direct
  appeal to this Court, we are unable to perform this function on the record
  that has been provided here.  Cf. Amiot v. Ames, 166 Vt. 288, 293-94, 693 A.2d 675, 678-79 (1997) (where sparsity of record prevented Supreme Court
  from deciding legal issue on appeal, and where factual issues remained in
  dispute, case was remanded to trial court for further development of the
  record and reconsideration of legal claim).

       ¶ 15.  Our conclusion is consistent with the statutory scheme created
  by the Legislature.  The review conducted by the Division is essentially an
  audit.  Pursuant to 33 V.S.A. § 909(a)(2)-(3), an aggrieved nursing home
  facility has the opportunity to develop a more complete record and
  participate in a contested proceeding before either the Secretary of the
  Agency of Human Services or the superior court.  These bodies are suited to
  resolve disputes of fact and to address mixed questions of fact and law in
  the first instance.  As we have previously noted, a de novo review by the
  superior court: 
   
       allows for the development of a full record that might not
       have been prepared within the Division because various stages
       of appeal to the Division are not contested proceedings, with
       both sides presenting evidence, but rather consist of
       opportunities for Medicaid providers to petition the Division
       to amend its initial determination of their reimbursement
       rate.  

  In re Mayo Health Care, Inc., 2003 VT 69, ¶ 8, 175 Vt. 605, 830 A.2d 129.

       ¶ 16.  Similarly, if a party opts for review by the Secretary, the
  Secretary must designate an independent appeals officer who must be a
  registered or certified public accountant, and the appeals officer conducts
  a contested-case hearing under Chapter 25 of Title 3 (the Vermont
  Administrative Procedure Act), subject to the rules of evidence and with
  the power to subpoena witnesses and documents and administer oaths.  33
  V.S.A. § 909(a)(3).  A party aggrieved by the Secretary's decision may then
  obtain judicial review from either the Supreme Court or superior
  court.(FN2) Id.

       ¶ 17.  We have reached a similar conclusion in other contexts where
  the Legislature has  provided injured parties with multiple avenues of
  appeal, such as in appeals from probate court and workers' compensation
  awards.  Although the statutory language differs, we find the rationale
  underlying these decisions equally compelling here.  
   
       ¶ 18.  In probate cases, for example, the Legislature provided both
  the superior court and this Court with jurisdiction over appeals.  See 12
  V.S.A. § 2553 (superior court has "appellate jurisdiction of matters
  originally within the jurisdiction of the probate court"); id. § 2555
  (injured parties have right of appeal to superior court); id. § 2551
  (Supreme Court has "jurisdiction of questions of law arising in the course
  of the proceedings of the superior and probate courts in probate matters,
  as in other causes").  Faced with this statutory scheme, we concluded that
  our review of direct appeals from final probate decrees was limited to
  "'pure' questions of law, the resolution of which do not depend upon
  factual distinctions and do not require review of the record."  In re
  Estate of Johnson, 158 Vt. 557, 559, 613 A.2d 703, 704 (1992).  Like
  interlocutory appeals under V.R.A.P. 5(b), we explained, "[w]here factual
  distinctions could control the resolution of an issue presented from a
  probate proceeding, the issue is not appropriate for review by this Court." 
  In re Estate of Johnson, 158 Vt. at 559, 613 A.2d  at 704.  In reaching our
  conclusion, we reasoned that the Legislature did not intend "to create a
  forum choice for litigants," and our interpretation of § 2551 avoided
  inconsistency and minimized concurrent jurisdiction.  Id. at 560, 613 A.2d 
  at 705.  We found these considerations, as well as the consistent
  administration of justice, legitimate state interests that were advanced by
  our holding.  Id. 

       ¶ 19.  Because the resolution of the issues presented on appeal in In
  re Estate of Johnson  necessitated consideration of the particular
  procedural and substantive facts of the case, we concluded that they were
  more appropriately addressed in superior court pursuant to 12 V.S.A. §§
  2553 and 2555.  In re Estate of Johnson, 158 Vt. at 559-60, 613 A.2d  at
  704.  To avoid an unduly harsh result, given that the time for filing an
  appeal had expired, we transferred the case directly to the superior court. 
  Id. at 560, 613 A.2d  at 705.  
   
       ¶ 20.  We reached a similar conclusion in In re J.C. and N.C., 169 Vt.
  139, 143, 730 A.2d 588, 590-91 (1999).  In that case, an aggrieved party
  filed a direct appeal with this Court from an order of the probate court,
  arguing that the probate court had erred as a matter of law in reaching its
  decision.  We concluded that we lacked jurisdiction over the appeal because
  it did not "present a pure question of law capable of resolution without
  reliance upon the factual record."  Id. at 140, 730 A.2d  at 589.  As we
  explained, the Court's consideration of whether the probate court erred
  "would invariably require a careful review of the record as a whole and the
  particular facts and circumstances of the case," which was "precisely the
  sort of determination more properly left to the superior court."  Id. at
  144, 730 A.2d  at 591.  We emphasized the policy concerns discussed in In re
  Estate of Johnson, and also noted that allowing such appeals would impede
  the expeditious movement of cases from probate court to superior court, and
  impede resolution of the underlying disputes.  Id. at 145, 730 A.2d  at 592. 
  As in In re Estate of Johnson, we transferred the case to superior court to
  avoid an unduly harsh result.  Id.

       ¶ 21.  In a somewhat similar vein, we have also recognized that,
  although the Legislature  provides claimants with several methods of
  challenging a workers' compensation award, see 21 V.S.A. §§ 671, 672, these
  avenues of appeal are mutually exclusive.  Roethke v. Jake's Original Bar &
  Grill, 172 Vt. 555, 556, 772 A.2d 492, 493 (2001) (mem.).  Thus, an injured
  party can either directly appeal a question of law to this Court, or it may
  appeal questions of fact, or mixed questions of law and fact, to the
  superior court.  Id.  If a claimant chooses the latter, and is aggrieved by
  the superior court's decision, he or she may then appeal that decision to
  this Court.  Id.   
   
       ¶ 22.  In this case, as in In re Estate of Johnson, we conclude that
  restricting our review of direct appeals from the Division to pure
  questions of law discourages forum shopping, "avoids inconsistency and
  minimizes concurrent jurisdiction."  158 Vt. at 560, 613 A.2d  at 705.  It
  is also consistent with the nature of the uniform desk-review process used
  by the Division.  Rather than require the Division to hold a contested-case
  hearing on every challenge to a cost report-a procedure that is expressly
  precluded by statute-a complete factual record can be developed before the
  superior court or the Secretary should such factual development be
  necessary.  To serve these goals, therefore, we will limit our review in
  direct appeals brought under 33 V.S.A. § 909(a)(1) to those questions
  "capable of accurate resolution . . . without the benefit of a factual
  record."  In re Estate of Johnson, 158 Vt. at 559, 613 A.2d  at 704
  (citation omitted).  Because the claims of error raised by Berlin involve
  disputes of fact and mixed questions of fact and law, they must first be
  addressed by the superior court or the Secretary.(FN3)

       ¶ 23.  As in In re Estate of Johnson, 158 Vt. at 560, 613 A.2d  at 705,
  were we to dismiss the instant appeal, Berlin would be without recourse to
  pursue its appeal to either the Secretary or  the superior court because
  the time for filing an appeal to those bodies has expired.  To avoid this
  result, which would be harsh and unjust due to Berlin's reliance on 33
  V.S.A. § 909(a)(1), we remand to the Division and allow Berlin thirty days
  from the date of this order to pursue its appeal elsewhere.  See 4 V.S.A. §
  2(b) (Supreme Court has "jurisdiction to issue all . . . orders that may be
  necessary to the furtherance of justice"); see also State v. Hunt, 150 Vt.
  483, 488-89, 555 A.2d 369, 373 (1988) (Supreme Court has supervisory
  authority to direct a change of venue "to prevent a failure of justice"),
  cert. denied, 489 U.S. 1026 (1989).

       The appeal is remanded to the Division of Rate Setting subject to
  Berlin's exercise of its right to appeal as follows:  within thirty days of
  the date of this order, Berlin may appeal the Director's decision pursuant
  to 33 V.S.A. § 909(a)(2), (3).  


  FOR THE COURT:


  _______________________________________
  Chief Justice


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                                  Footnotes


FN1.  The Director stated that the activities of CPL and the demeanor of the
  witnesses at the hearing clearly showed that the company was determined to
  prevent the recognition of a union and successful collective bargaining at
  Berlin.  He found CPL's decision to hire Jackson Lewis a prime indicator of
  this intent. 

FN2.  Because the issue is not directly before us, we express no opinion as
  to the nature of our review of appeals from the superior court or appeals
  from a proceeding before the Secretary.  

FN3.  Once a complete factual record has been developed, these bodies can
  also decide if Berlin's claims are barred in whole or in part by the
  doctrine of issue preclusion, given Berlin's failure to appeal the
  Division's decision on its 2001 cost report.  See Berlin Convalescent Ctr.,
  Inc. v. Stoneman, 159 Vt. 53, 58, 615 A.2d 141, 144-45 (1992) (affirming
  trial court's decision that issue preclusion barred nursing home provider
  from re-litigating issue of proper standard of review to be employed in
  appeals to superior court under 33 V.S.A. § 909(a)(2)).