MORRIS COUNTY VS. STATE OF NEW JERSEY, ETC. (L-0684-19, MERCER COUNTY AND STATEWIDE) ( 2021 )

NOT FOR PUBLICATION WITHOUT THE
APPROVAL OF THE APPELLATE DIVISION
This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.
SUPERIOR COURT OF NEW JERSEY
APPELLATE DIVISION
DOCKET NO. A-1906-19
MORRIS COUNTY,
Plaintiff-Appellant,
v.
STATE OF NEW JERSEY,
DEPARTMENT OF HUMAN
SERVICES,
Defendant-Respondent.
_________________________
Argued February 23, 2021 – Decided July 27, 2021
Before Judges Fisher, Gilson, and Gummer.
On appeal from the Superior Court of New Jersey, Law
Division, Mercer County, Docket No. L-0684-19.
Dennis Driscoll argued the cause for appellant
(Inglesino, Webster, Wyciskala & Taylor, LLC,
attorneys; Lisa D. Taylor and Joseph M. Franck, of
counsel and on the briefs).
Christopher J. Riggs, Deputy Attorney General, argued
the cause for respondent (Gurbir S. Grewal, Attorney
General, attorney; Melissa H. Raksa, Assistant
Attorney General, of counsel; Christopher J. Riggs and
Arundhati Mohankumar, Deputy Attorney General, on
the brief).
PER CURIAM
In this case concerning the redistribution of federal Medicaid funds,
plaintiff Morris County appeals orders divesting the court of jurisdiction and
transferring the matter to defendant State of New Jersey, Department of Human
Services (DHS). We affirm the aspect of the orders transferring plaintiff's claim
for review by the DHS but reverse the divestiture of jurisdiction because the
motion judge erred in not retaining jurisdiction and staying the case pending the
DHS's review.
I.
Because the case comes to us as a result of defendant's motion to dismiss,
we assume as true the facts alleged by plaintiff and give plaintiff "the benefit of
all inferences that may be drawn from those facts." Feinberg v. N.J. Dep't of
Env't Prot., 137 N.J. 126, 129 (1994); see also Baskin v. P.C. Richard & Son,
LLC, 246 N.J. 157, 171 (2021).
Medicaid is a "joint federal-state program . . . established by Title XIX of
the Social Security Act to provide medical assistance on behalf of certain
categories of persons whose income and resources are insufficient to meet the
costs of necessary medical services." In re Hosps.' Petitions for Adjustment of
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Rates for Reimbursement of Inpatient Servs. to Medicaid Beneficiaries, 383 N.J.
Super. 219, 227 (App. Div. 2006) (citing 42 U.S.C. § 1396, §§ 1396a to 1396v).
The Medicaid program is administered federally by the United States
Department of Health and Human Services (USDHHS) and in New Jersey by
DHS through the Division of Medical Assistance and Health Services
(DMAHS). Id. at 227-28 (citing 42 U.S.C. § 1396a(a)(5); N.J.S.A. 30:4D-4, -
5, and -7).
Plaintiff contributes to New Jersey's share of Medicaid expenditures
pursuant to the State's approved Medicaid plan. Plaintiff also provides social
services to its residents, by the support of psychiatric services and, until the end
of 2017, the operation of a skilled nursing facility called Morris View Healthcare
Center (Morris View). Those services are funded by Medicaid monies received
from the state and federal governments and taxes assessed by plaintiff. Thus,
plaintiff is both a political subdivision that contributes to the State's share of
Medicaid expenditures and a county health-care provider.
Following the economic downturn of 2008, Congress enacted the
American Recovery and Reinvestment Act of 2009 (ARRA), Pub. L. No. 111-
5, 123 Stat. 115 (2009). The purpose of the ARRA, among other things, was to
"stabilize State and local government budgets . . . to minimize and avoid
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reductions in essential services," "provide fiscal relief to States in a period of
economic downturn," and "protect and maintain State Medicaid programs . . .
including by helping to avert cuts to provider payment rates and benefits or
services." Id. § 3(a)(5), § 5000(a)(1) to (a)(2). ARRA increased federal
Medicaid assistance to the states by temporarily increasing the federal
government's share of most Medicaid expenditures, first from October 1, 2008,
to December 31, 2010 (recession-adjustment period), and then to June 30, 2011
(extension period). To be eligible for that increased assistance, states could not
require political subdivisions, such as counties, to pay a greater percentage of
the non-federal share of Medicaid expenditures during the recession-adjustment
period than had been required in the previous twelve-month period (base
period). That eligibility qualification has been called "the political subdivision
requirement." As a result of the increase in the federal share, New Jersey
received approximately $2.1 billion dollars in additional Medicaid funding.
In July 2014, the Office of Inspector General (OIG) of the USDHHS
released a report in which it found New Jersey had not complied with the
political subdivision requirement, meaning New Jersey's political subdivisions
contributed a greater percentage of the non-federal share of Medicaid
expenditures during the recession-adjustment period than they had during the
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base period. According to the OIG, to comply, New Jersey had to redistribute
approximately $45.2 million dollars to its political subdivisions. Of that
amount, the OIG concluded the State had to redistribute $20,883,357 for county
nursing facility expenditures, with $1,869,357 attributed to plaintiff. The OIG's
report covered only the recession-adjustment period; the OIG recommended
DHS work with the Centers for Medicare & Medicaid Services (CMS), which is
part of USDHHS, to ensure it had complied with the political subdivision
requirement during the extension period.
New Jersey contested the OIG's findings. In a follow-up review dated
May 23, 2016, CMS upheld $37,320,359 of the OIG's recommended
redistribution amount, including all the county nursing facility redistribution
amount. CMS advised DHS that if New Jersey did not agree to perform the
redistribution, CMS would initiate disallowance of the entire amount of
enhanced funding provided to the State.
II.
In November 2018, 1 plaintiff filed a complaint in which it alleged the State
owed it nearly $22 million dollars. First, acknowledging it had received
1
According to plaintiff, a prior complaint it had filed in 2016 was dismissed in
2017 based on on-going communications between the State and CMS, updated
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$2,056,439.94 in redistributed funds from the State, plaintiff alleged the State
still owed it $383,654.06 out of $570,737 in funds to which plaintiff claimed it
was entitled due to the State's noncompliance with the political subdivision
requirement during the ARRA extension period. Second, plaintiff alleged the
State had issued a "recoupment schedule" in June 2017 based on a 2006 audit
related to Morris View and indicated that beginning in August 2017 the State
would begin recoupment of $1,661,594.37 from plaintiff, which, according to
plaintiff, "effectively reduces the County's Medicaid rate for 2007 through
2017." Plaintiff asserted that recoupment would impact the calculations in the
OIG report such that the State owed it at least $145,537 more than what the OIG
had found.2
calculations the State had submitted to CMS on July 12, 2016, and the
exhaustion-of-administrative-remedies doctrine.
2
Plaintiff also made claims regarding funds allegedly due to it pursuant to its
"Enhanced Peer Grouping under the State's Medicaid Plan." In response to the
initial transfer order, defendant proposed to transfer those claims to the Office
of Administrative Law as a contested case for a fair hearing. At the end of a
subsequent case management conference, plaintiff's counsel asked for
reinstatement of claims related to ARRA, not Enhanced Peer Grouping; the
parties did not raise arguments about the Enhanced Peer Grouping in their
appellate briefs; and counsel during oral argument stated it was not at issue.
Accordingly, we do not address the Enhanced Peer Grouping claims.
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Plaintiff pleaded claims for "account stated," "recapture" for "wrongful
detention of the County's property," conversion, and declaratory judgment as to
the amount owed to it; and demanded payment of the amount allegedly due,
"loss of use" damages, punitive damages, and attorneys' fees. Plaintiff also
demanded a trial by jury.
Defendant moved to transfer venue to Mercer County and to dismiss the
complaint with prejudice. On March 26, 2019, defendant's motion to transfer
venue was granted. A Mercer County judge subsequently heard oral argument
on the motion to dismiss. After defense counsel had argued the case should be
dismissed because plaintiff did not have a private right of action and defendant
had sovereign immunity, the motion judge questioned the "essence of the cause
of action" asserted by plaintiff and whether administrative remedies were
available on each of plaintiff's claims. She directed plaintiff to amend the
complaint and both parties to submit additional briefing.
Plaintiff amended its complaint, pleading conversion based on defendant's
alleged retention of funds owed to plaintiff due to defendant's noncompliance
with the political subdivision requirement during the ARRA extension period
and recoupment of funds related to the 2006 audit; breach of contract by failing
to make proper Medicaid contributions and payments pursuant to a Medicaid
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provider agreement; and breach of the implied covenant of good faith and fair
dealing by depriving plaintiff of reimbursement owed to it and causing it to
make excess contributions.3 Plaintiff again sought a declaratory judgment as to
the amount owed to it, punitive damages, "loss of use" damages, compensatory
damages, and attorneys' fees and again demanded a trial by jury.
After hearing oral argument, the motion judge rendered her decision. Due
to "the complexity of Medicaid" and DHS's expertise, because the case involved
"County shares and State shares that are determined based upon some complex
system that's beyond the four corners of this [c]omplaint," and because she
viewed plaintiff's contract and tort claims as "an attempt to shoehorn" claims
about the State's "administration of the Medicaid Program" and ARRA "into
common-law causes of action," the motion judge found a contract or conversion
action was not "the appropriate way" to adjudicate plaintiff's claim; "rather, . . .
it's to go through the [a]gency and require the [a]gency . . . to provide . . . the
avenue for relief that is represented." Believing "there just has to be the
application of [a]gency expertise here" and that the case "crie[d] out for
administrative remedy," the motion judge concluded "the appropriate thing to
3
Plaintiff also pleaded violations of the Open Public Records Act, N.J.S.A.
47:1A-1 to -13, and the common law right of access but later withdrew those
claims.
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do . . . is a transfer to the [a]gency" with a direction that it "provide . . . a decision
or an analysis . . . to the County that explains the basis for the amount of money
that [it] got." She explained "while the [a]gency is not going to . . . decide a
[c]ontract claim or a tort claim, the [a]gency will be looking to the substance of
. . . these claims in terms of the money that the County is seeking to recover,
and will . . . provide the [c]ourt with . . . its position in regard [to whether] . . .
there [are] [a]gency avenues of relief . . . ."
The motion judge issued an order transferring plaintiff's claims to the
Commissioner of DHS "for administrative review"; retaining jurisdiction "to
ensure that a viable administrative mechanism exists to address" plaintiff's
claims; and directing DHS to "review the substance of [p]laintiff's claims in
terms of the additional moneys that [plaintiff] alleges is due to it by the State"
and to provide "either an explanation of its rulings regarding the moneys claimed
by the County, or a description of the administrative process [DHS] will follow
in reviewing the County's claims," its calculations regarding ARRA fund
distributions, and an explanation regarding how it intended to address plaintiff's
assertion the 2006 audit recoupment would impact the amount allegedly due to
plaintiff. The motion judge scheduled a case management conference, giving
plaintiff an opportunity to raise concerns about "the viability of administrative
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remedies" proposed by DHS and to ask her to restore counts of the amended
complaint.
In a subsequent letter, defense counsel stated DHS would "afford
[plaintiff] with administrative processes to pursue its claims ," by referring
plaintiff's ARRA claim to DMAHS for a final agency decision. Plaintiff
objected to the proposed administrative process and asked the motion judge to
restore the amended complaint. Plaintiff argued defendant had no authority to
support the existence of any available administrative process but instead was
"clearly attempting to create an arbitrary and unreasonable artificial
administrative process on an ad hoc basis."
The motion judge conducted a case management conference during which
she heard the parties' arguments concerning the proposed administrative
process. Not dissuaded from her original conclusion that "the matter is an
administrative one that needs to be reviewed by the [a]gency," the motion judge
found DHS had "the flexibility to create an administrative remedy" and stated
she was "comfortable that the State has offered [plaintiff] a mechanism by which
[it] should be able to get an answer." She subsequently issued an order
reaffirming the transfer of the complaint and divesting the court of jurisdiction.
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III.
Plaintiff appeals, contending the court erred by misapplying the motion-
to-dismiss standard by failing to give all reasonable inferences to plaintiff and
by transferring the case "without dispositive authority"; by applying the
primary-jurisdiction doctrine; and by applying the exhaustion-of-
administrative-remedies doctrine.
Defendant argues the motion judge properly transferred the case because
regardless of how plaintiff styled its claims, it was seeking relief from DHS's
allocation of Medicaid funds – a claim best suited to be addressed by the state
agency that administers the Medicaid program. Defendant also contends the
transfer was proper because plaintiff failed to exhaust its administrative
remedies and the motion judge correctly found DHS had flexibility under its
enabling statute to respond to a Medicaid allocation dispute and create an
administrative remedy, even though explicit regulations for an administrative
remedy did not exist.
A.
We review de novo a trial court's legal conclusions. Clark v. Nenna, 465
N.J. Super. 505, 511 (App. Div. 2020). Thus, although a trial court's initial
decision to invoke primary jurisdiction may be discretionary in nature, Est. of
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Kotsovska v. Liebman, 221 N.J. 568, 588 (2015), we owe no deference to a trial
court's determination of legal questions concerning whether the court or another
entity has primary jurisdiction, Muise v. GPU, Inc., 332 N.J. Super. 140, 157
(App. Div. 2000).
The primary-jurisdiction doctrine applies "when a case is properly filed in
the Superior Court but the court declines original jurisdiction, referring specific
issues to the appropriate administrative body." Magic Petroleum Corp. v. Exxon
Mobil Corp., 218 N.J. 390, 405 (2014); see also Kotsovska, 221 N.J. at 588. As
our Supreme Court acknowledged, "no formula exists to evaluate the
applicability of primary jurisdiction." Id. at 407. Courts, nevertheless, have
been guided by the following factors:
1) whether the matter at issue is within the conventional
experience of judges; 2) whether the matter is
peculiarly within the agency's discretion, or requires
agency expertise; 3) whether inconsistent rulings might
pose the danger of disrupting the statutory scheme; and
4) whether prior application has been made to the
agency.
[Boldt v. Correspondence Mgmt., Inc., 320 N.J. Super.
74, 85 (App. Div. 1999).]
See also Kotsovska, 221 N.J. at 588. The primary-jurisdiction doctrine applies
when "disputed factual issues should be evaluated by the agency because of its
expertise, but legal issues should be left to the court to decide." Magic
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Petroleum, 218 N.J. at 406; see also Boss v. Rockland Elec. Co., 95 N.J. 33, 41
(1983) (finding "when the determination of the legal issue must be preceded by
'the taking of the necessary evidence and the making of the necessary factual
findings,' it is best done by the administrative agency specifically equipped to
inquire into the facts") (quoting Roadway Express, Inc. v. Kingsley, 37 N.J. 136,
140 (1962)).
The exhaustion-of-administrative-remedies doctrine is "designed to allow
administrative bodies to perform their statutory functions in an orderly manner
without preliminary interference from the courts." Brunetti v. Borough of New
Milford, 68 N.J. 576, 588 (1975); see also In re Request to Modify Prison
Sentences, 242 N.J. 357, 379 (2020). The exhaustion doctrine is applied:
when it will ensure a claim will initially be heard by a
body possessing expertise, when it allows for the
creation of a factual record that will promote for
meaningful appellate review, or when it fosters a
potential for terminating the controversy, since an
agency decision might satisfy the parties and obviate
resort to the courts.
[Rosenstein v. State, Dep't of Treasury, Div. of
Pensions & Benefits, 438 N.J. Super. 491, 498 (App.
Div. 2014).]
A court considering whether to apply the doctrine should consider whether its
application would be "'futile' or might result in irreparable harm, or whether 'an
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overriding public interest calls for a prompt judicial decision.'" Id. at 498-99
(quoting Garrow v. Elizabeth Gen. Hosp. & Dispensary, 79 N.J. 549, 561
(1979)). Futility includes when administrative remedies are inadequate or non-
existent. Warrenville Plaza, Inc. v. Warren Twp. Sewerage Auth., 230 N.J.
Super. 461, 465 (App. Div. 1989) (finding exhaustion doctrine "rests on the
premise that such remedies are 'certainly available and completely adequate to
right the wrong complained of'") (quoting Abbott v. Burke, 195 N.J. Super. 59,
73 (App. Div. 1984), rev'd on other grounds, 100 N.J. 269 (1985)).
The primary-jurisdiction and exhaustion doctrines are "doctrinally-
related." Boss, 95 N.J. at 40; see also Muise, 332 N.J. Super. at 158. Both
further the goals of assuring controversies are resolved in appropriate forums
and maintaining proper relationships between administrative agencies and
courts. Ibid. "In primary jurisdiction, 'the case is properly before the court, but
agency expertise is required to resolve the questions present'; by contrast, when
a court relies on exhaustion, it 'is saying that the case ought to have been brought
before the administrative agency in the first place.'" Muise, 332 N.J. Super. at
159 (quoting Boldt, 320 N.J. Super. at 83-84); see also Curzi v. Raub, 415 N.J.
Super. 1, 20 (App. Div. 2010).
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The procedure a trial court should follow under either doctrine is clear.
As we recently stated in Estate of Burns v. Care One at Stanwick, LLC, ___ N.J.
Super. ____, ____ (App. Div. 2021) (slip op. at 21),
When the claim itself falls within the agency's
exclusive jurisdiction, it is subject to dismissal because
of the failure to exhaust administrative remedies. But,
when a court has jurisdiction over the claim and a
pivotal aspect presents a question falling within an
agency's expertise, a court will retain jurisdiction, stay
the action, and allow for the agency's determination of
that aspect.
See also Muise, 332 N.J. Super. at 161 (finding "[w]hen a claim presents some
issues that are within an agency's special expertise and others which are not, the
proper course is for the court to refer the former to the agency, and then to apply
the agency's findings or conclusions to its determination of the remaining
issues"). Thus, a court applying the exhaustion doctrine does not retain
jurisdiction; a court applying the primary-jurisdiction doctrine "retains
jurisdiction but defers action until the agency has reviewed the case and
employed its expertise." Magic Petroleum, 218 N.J. at 405; see, e.g., Boss, 95
N.J. at 41-42 (Court remanded, instructing trial court to refer issue to agency for
fact finding and then to apply fact finding to legal issues to be resolved by trial
court); Boldt, 320 N.J. Super. at 87-88 (finding factual issue should be referred
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to agency with trial court applying agency's findings to the plaintiff's legal
claims).
IV.
In an apparent attempt to find a creative solution to the complex and
nuanced case before her, the motion judge, without specifically referencing
either doctrine, conflated elements of the primary-jurisdiction and exhaustion
doctrines to transfer and effectively dismiss the case. Although she
appropriately transferred the case to the DHS for factual findings and
calculations within its expertise regarding the State's compliance with ARRA's
political subdivision requirement, she erred in not retaining jurisdiction so that
the court ultimately could apply those factual findings to plaintiff's legal claims.
In preparing its report, the OIG considered only the ARRA recession-
adjustment period. As alleged by plaintiff, the OIG did not consider the impact,
if any, the recoupment based on the 2006 audit may have had on its calculations
regarding the recession-adjustment period. The OIG expressly did not make any
calculations regarding the extension period of ARRA; instead, it recommended
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DHS work with CMS to ensure the State had complied with ARRA's political
subdivision requirement during the extension period.4
Plaintiff's remaining causes of action are premised directly on a
determination of whether the 2006 audit recoupment alters the OIG's
calculations regarding the State's compliance with the political subdivision
requirement during the recession-adjustment period and on the preparation of
calculations regarding whether the State complied with the political subdivision
requirement during the extension period. As the motion judge recognized, to
adjudicate plaintiff's common-law causes of action, the court would have to "get
into calculations . . . that the Federal Government made . . . in the first instance,
and then, apparently, subsequent to the materials [provided] to me . . . in regard
to the extension period." We can understand why the motion judge believed she
was being asked "to step in almost to the role of the Federal Government" to
determine the State's compliance with the political subdivision requirement and
viewed those necessary calculations as outside the expertise of the court and
4
Plaintiff did not make any allegations in its amended complaint regarding the
results, if any, of that collaboration, perhaps because it was not provided with
any information about it. Thus, for example, we do not know if the State and
CMS reached agreement on calculations and redistribution amounts for the
extension period or whether any agreed-upon figures factored into the State's
redistribution of $2,056,439.94 to plaintiff.
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within the expertise of the DMAHS. As "the 'single State agency' responsible
for administering New Jersey's Medicaid program," DMAHS's expertise is clear.
In re A.N., 430 N.J. Super. 235, 243 (App. Div. 2013) (quoting N.J.S.A. 30:4D-
5); see also N.J.A.C. 10:49-1.1.
In transferring the case and divesting the court of jurisdiction, the motion
judge appeared to be applying the exhaustion doctrine. That was an error
because no administrative remedies were available until after the motion judge
transferred the case and ordered defendant to review plaintiff's claims regarding
moneys allegedly due to it and to provide either an explanation of its rulings or
a description of the administrative process it would follow in reviewing
plaintiff's claims. A court can't transfer and dismiss a case for failure to exhaust
administrative remedies when the remedies don't exist. See Brunetti, 68 N.J. at589 n.12; Warrenville Plaza, 230 N.J. Super. at 465.
The circumstances of this case are more closely aligned with the primary-
jurisdiction doctrine. Calculations and factual determinations regarding
whether the State complied with ARRA's political subdivision requirement
during the extension period and whether and how the 2006 audit recoupment
impacts the OIG's prior calculations and findings concerning the State's
compliance with the political subdivision requirement during the recession-
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adjustment period is not within the "conventional experience" of judges and falls
more particularly in DMAHS's expertise. See Kotsovska, 221 N.J. at 588.
Given that plaintiff's claims involve the potential redistribution of a portion of
the $2.1 billion dollars in additional Medicaid funding the State received as a
result of ARRA, the potential impact of inconsistent rulings is a concern. See
id. A "pivotal aspect" of plaintiff's claims is the underlying calculations and
factual findings regarding the State's compliance with the political subdivision
requirement during the extension period and the possible impact of the 2006
audit recoupment on the OIG's prior calculations. See Est. of Burns, ___ N.J.
Super. at ____ (slip op. at 21). Accordingly, under the primary-jurisdiction
doctrine, we see no error in the transfer of the case to the appropriate agency for
a determination of those particular factual issues.
The motion judge erred in divesting the court's jurisdiction. By
transferring for an evaluation of the underlying factual issues and then
effectively dismissing the case, the motion judge closed the avenue to resolution
of the "legal issues . . . left to the court to decide." Magic Petroleum, 218 N.J.
at 406. And, consistent with the primary-jurisdiction doctrine, resolution of
those legal issues ultimately is for the court.
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Affirmed in part; reversed in part. We remand for entry of an order that
reinstates the amended complaint and the trial court's jurisdiction but also
transfers the matter to DMAHS for proceedings consistent with the opinion and
stays the trial court proceedings until the DMAHS renders the findings required
for a complete disposition of plaintiff's amended complaint. We do not retain
jurisdiction.
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