Homestyle Direct, LLC v. Department of Human Services , 354 Or. 253 ( 2013 )

No. 45 October 3, 2013 253
IN THE SUPREME COURT OF THE
STATE OF OREGON
HOMESTYLE DIRECT, LLC,
Respondent on Review,
v.
DEPARTMENT OF HUMAN SERVICES,
Petitioner on Review.
(DHS 20091957; CA A145136; SC S059874)
En Banc
On review from the Court of Appeals.*
Argued and submitted September 21, 2012; resubmitted
January 7, 2013.
Cecil A. Reniche-Smith, Assistant Attorney General,
Salem, argued the cause and filed the brief for petitioner on
review. With her on the brief were John R. Kroger, Attorney
General, and Anna M. Joyce, Solicitor General.
Samuel E. Sears of Larimer & Sears, Salem, argued the
cause and filed the brief for respondent on review.
LANDAU, J.
The decision of the Court of Appeals is reversed. The final
order of the Department of Human Services is affirmed.
______________
* Judicial review of the final order of the Oregon Department of Human
Services. 245 Or App 598, 263 P3d 1118 (2011).
254 Homestyle Direct, LLC v. DHS
The Department of Human Services (department) revoked a contractor’s
eligibility to provide home delivered meals to Medicaid clients because the
contractor breached its provider agreement with the department by failing to
comply with certain food preparation and delivery standards. The contractor
objected to the revocation, arguing that the standards in the provider
agreement were not enforceable because they should have been promulgated as
administrative rules. The department rejected those arguments. The Court of
Appeals reversed, concluding that the department cannot enforce unpromulgated
rules merely by making them terms of a contract. Held: (1) The matter was
not rendered moot by the department’s later adoption of a temporary rule that
expired; (2) the provider agreement between the contractor and the department
constituted an enforceable contract; and (3) under Coats v. ODOT, 334 Or 587, 54
P3d 610 (2002), the only relevant question was whether the terms of the provider
agreement were binding on the contractor as contract terms, not whether the food
preparation and delivery standards were valid as administrative rules.
The decision of the Court of Appeals is reversed. The final order of the
Department of Human Services is affirmed.
Cite as 354 Or 253 (2013) 255
LANDAU, J.
This is a contested-case proceeding in which the
Department of Human Services (department or DHS)
revoked a contractor’s eligibility to provide home delivered
meals to Medicaid clients because the contractor breached
its contract with the department by failing to comply with
certain food preparation and delivery standards. The con-
tractor, Homestyle Direct, objected to the revocation, argu-
ing that the standards in the contract are not enforceable
because they should have been promulgated as administrative
rules. The department rejected those arguments, concluding
that whether the standards could have been promulgated as
administrative rules is irrelevant to their enforceability as
terms of a contract. The Court of Appeals reversed on the
ground that, notwithstanding this court’s decision in Coats
v. ODOT, 334 Or 587, 54 P3d 610 (2002), the department can-
not enforce unpromulgated rules as terms of a contract. For
the reasons that follow, we reverse the decision of the Court
of Appeals and affirm the final order of the department.
I. BACKGROUND
A.  The Home Delivered Meals Program
Title XIX of the Social Security Act, 42 USC § 1396
et seq., authorizes federal grants to states for medical assis-
tance, known as Medicaid, to low-income persons who are age
65 or older, disabled, or members of families with dependent
children. See 42 CFR § 430.0. Within a broad set of federal
rules, states decide “eligible groups, types and ranges of ser-
vices, payment levels for services, and administrative and
operating procedures.” Id. A participating state is required
to submit a plan to the federal government “describing
the nature and scope of its Medicaid program and giving
assurances that it will be administered in conformity with”
federal law. 42 CFR § 430.10. The states may contract with
providers to furnish services under its Medicaid program.
See 42 CFR 431.107(b). Such agreements must include com-
mitments by the providers to keep adequate records, make
certain disclosures, and comply with other standards. Id.
DHS administers such a Medicaid program. The
program includes, among other things, a Home Delivered
256 Homestyle Direct, LLC v. DHS
Meals (HDM) Program, which provides meals to disabled
homebound individuals as a subsidized benefit under the
Medicaid program. DHS contracts with nongovernment
agency providers to prepare and deliver the meals, which
DHS reimburses directly for their services. To qualify as
an HDM provider, an individual or organization must meet
applicable regulatory and licensing standards. See OAR 410-
120-1260(5) (2008).1 Providers must submit an application
to DHS for agency approval and must sign a “Provider
Agreement” form to obtain reimbursement for their services.
The signed form “constitutes agreement * * * to comply with
all applicable * * * Provider rules and federal and state laws
and regulations.” OAR 410-120-1260(2). On completion of
the application and execution of the Provider Agreement, the
department issues a “provider number” to the applicant. OAR
410-120-1260(7). Issuance of the provider number “estab-
lishes enrollment of an individual or organization as a Pro-
vider for the specific category(ies) of services covered by the
* * * application.” OAR 410-120-1260(9).
Under the applicable administrative rules, the pro-
vider may terminate enrollment in the service program at
any time. OAR 410-120-1260(15)(a). The department is also
authorized to terminate or suspend a provider from enroll-
ment in the program for, among other reasons, “[b]reaches
of [the p]rovider agreement.” OAR 410-120-1260(15)(b)(A).
When the department determines that a provider has failed
to meet the requirements of the agreement, it is authorized
to suspend the provider number immediately. OAR 410-120-
1260(16). The provider then is entitled to a contested case
hearing to determine whether the provider number should
be revoked. Id.
B.  Facts
The relevant facts are not in dispute. Homestyle is
an Idaho corporation that prepares frozen meals. In 2005,
it applied for and obtained a provider number authorizing
it to provide home-delivered meals to Medicaid recipients
1
OAR 410-120-1260 has since been amended. Those amendments, however,
are not relevant to the disposition of this case. All references to the administrative
rules in this opinion are to those rules in effect at the time of the events in this
case.
Cite as 354 Or 253 (2013) 257
in Oregon. Homestyle prepared frozen meals and shipped
them to Medicaid clients once or twice each month by United
Parcel Service. The department then reimbursed Homestyle
for the meals using Medicaid funds.
In October 2008, the department adopted new
standards governing the HDM program. Among other things, the
new HDM standards impose “[n]utrition [p]rovider [b]asic
[r]equirements.” Those include a requirement that “[n]utri-
tion providers must be able to provide at least one hot meal
or other appropriate meal at least once a day, five or more
days per week.” If the provider believes that delivering five
or more hot meals each week is not feasible, the providers
“must provide a written request to the State agency for
approval of a lesser frequency of meal service.” The meal pro-
vider is further required to “develop procedures for regularly
(does not have to be daily) taking and documenting meal
temperatures of the last meal served on each route.” The new
HDM standards note that the state health code requires a
hot temperature of at least 140 degrees Fahrenheit.
In November 2008, the department notified all HDM
providers of the new standards by sending a letter to each
provider with a packet of documents including the new stan-
dards. The packet also included a new provider enrollment
form. The department advised the recipients of the packet
that each provider was required to complete the new provider
enrollment form to continue receiving reimbursement for
delivering HDM meals after January 31, 2009. The depart-
ment stated that, after that date, providers who had not
completed a new provider enrollment form and agreed to the
new terms would no longer be eligible to participate in the
program. It also stated that, “[b]y signing the provider
enrollment form, providers agree to meet the * * * general pro-
vider standards as well as the attached Nutrition Program
Standards. * * * Compliance is mandatory for payment.”
The new provider enrollment form consisted of a
single page, which included areas for providers to fill in cur-
rent business and contact information, as well as a signa-
ture line. Immediately below the signature line, the form
stated: “The Home Delivered Meal provider must comply
with *  * the Medicaid Nutrition Standards published at
*
258 Homestyle Direct, LLC v. DHS
http://www.dhs.state.or.us/spd/tools/cm/hdm/standards.pdf
when providing Home Delivered Meals paid for by Medicaid.
Compliance is mandatory for payment.”
On November 21, 2008, Homestyle’s owner, completed
and signed the new provider enrollment form and returned the
form to the department. Following that, however, Homestyle
continued to prepare frozen meals for home delivery once
or twice each month to Oregon Medicaid clients. It did not
submit a written request to the department for permission
to deliver meals less frequently than the HDM standards
required. Homestyle also continued to have its frozen meals
delivered by UPS package delivery service, whose drivers
did not check the temperature of the food inside the delivered
packages.
In April 2009, the Department of Human Services
determined that Homestyle was not complying with the new
HDM standards because, among other things, it had failed
to provide hot meals, failed to provide meals at least five
days each week without first seeking authorization to do so,
and failed to perform temperature checks on delivered food.
DHS issued a notice to Homestyle that it intended to revoke
Homestyle’s provider number, ending its right to receive reim-
bursement. Homestyle requested a contested case hearing
as provided in OAR 410-120-1260(16).
At the hearing, Homestyle did not dispute that it had
failed to meet the HDM standards as DHS had contended.
Instead, it asserted that those standards were unenforceable
because they amounted to unpromulgated administrative
rules. In the alternative, Homestyle asserted that it had
not breached the provider agreement because the provider
agreement did not amount to a contract in the first place.
According to Homestyle, the agreement amounted to an
unlawful contract of adhesion and, in any event, lacked con-
sideration.
In response, DHS first asserted that whether it could
have promulgated the HDM standards as formal administrative
rules was irrelevant, because, under this court’s decision in
Coats, the standards were enforceable terms of a contract
that Homestyle freely agreed to meet. DHS further asserted
Cite as 354 Or 253 (2013) 259
that the provider agreement is an enforceable contract,
secured by the consideration of reimbursement for delivery
services performed.
The administrative law judge (ALJ) held in favor
of DHS. The ALJ first concluded that the HDM standards
were enforceable as contract terms, whether or not they also
could have been promulgated as administrative rules:
“*  * I find no authority that prevents an agency from
*
including terms in a contract that can be construed as
unpromulgated rules. While the new HDM standards do
meet the statutory definition of rules, because the Depart-
ment is attempting to enforce the standards as contractual
terms in this matter I do not address their validity as rules
under the [Administrative Procedures Act].”
The ALJ further concluded that the provider agreement
constituted an enforceable contract, which Homestyle had
breached in each of the particulars that DHS had asserted.
DHS issued a final order adopting the ALJ’s decision
and order and revoking Homestyle’s provider number.
Homestyle sought judicial review of that final order
in the Court of Appeals, which reversed. Homestyle Direct,
LLC v. DHS, 245 Or App 598, 600, 263 P3d 1118 (2011).
The court concluded that the HDM standards amounted to
unenforceable, unpromulgated administrative rules. DHS,
the court explained, “cannot enforce its own unpromulgated
standards by putting them in the provider agreement and
then enforcing the rule that allows sanctions for noncom-
pliance with that agreement. In substance, if not in form, that
is an attempt to enforce an invalid rule.” Id. at 605. The court
acknowledged that this court’s decision in Coats could be
read to support DHS’s position. Id. at 604. Nevertheless, the
court concluded that Coats was distinguishable, for reasons
that we detail below. Having determined that the HDM
standards were unenforceable, the court did not address
Homestyle’s argument that the provider agreement was not
an enforceable contract.
DHS sought review in this court. In the meantime,
in response to the decision of the Court of Appeals, DHS
260 Homestyle Direct, LLC v. DHS
adopted a temporary administrative rule that incorporated
the HDM standards. It then notified this court that its
adoption of the temporary rule might render the case moot.
In light of that information, this court asked the parties
to address a series of questions related to justiciability.
In response, DHS noted that the temporary rule was set
to expire on June 13, 2012, and that it did not intend to
promulgate a permanent rule to replace it. The temporary
rule has since expired, and DHS has not promulgated a
permanent rule adopting the HDM standards.
II. ANALYSIS
A.  Mootness
We begin, as we must, with the issue of justiciability.
This court has explained that the judicial power granted
to the courts under Article VII (Amended) of the Oregon
Constitution is “limited to the adjudication of an existing
controversy.” Yancy v. Shatzer, 337 Or 345, 362, 97 P3d 1161
(2004). Consequently, Oregon courts “have no authority to
decide moot cases.” State v. Hemenway, 353 Or 498, 500,
302 P3d 413 (2013). A justiciable, nonmoot case is one in
which “the parties to the controversy * * * have adverse legal
interests and the court’s decision in the matter [will] have
some practical effect on the rights of the parties.” State v.
Snyder, 337 Or 410, 418, 97 P3d 1181 (2004).
In this case, the parties contend that, notwithstand-
ing the temporary adoption of temporary rules, the matter
remains justiciable at this point. We agree. There is no ques-
tion that the parties have adverse interests; both DHS and
Homestyle have vigorously and ably advocated their opposing
viewpoints. There is also no question that this court could grant
effective relief to the parties. If we agree with the department,
then its revocation of Homestyle’s provider number will stand,
and it will not be required to promulgate its HDM standards
as administrative rules to enforce them against providers in
the HDM program. Conversely, if we agree with Homestyle,
then the department’s order will be vacated.
An interesting question arises whether the matter
was justiciable during the time that the temporary rules
Cite as 354 Or 253 (2013) 261
were in effect. We need not address that question in this
case, however, because those temporary rules have expired.
B.  Merits
On review, the parties essentially reprise the argu-
ments that they have made in previous stages of this con-
tested case proceeding. Homestyle contends that the HDM
standards are unenforceable, unpromulgated rules, as the
Court of Appeals held, and that, in any event, the provider
agreement did not constitute an enforceable contract. DHS,
on the other hand, contends that the Court of Appeals erred
in failing to apply this court’s decision in Coats and in
concluding that it may not enforce the HDM standards as
contract terms.
1.  Whether the Provider Agreement Is an Enforceable
Contract
We begin with the question whether the provider
agreement is an enforceable contract in the first place. If it
is not, then that obviates the need to address whether the
HDM standards are enforceable as contract terms.
Homestyle begins by arguing that the 2008 pro-
vider agreement was not an enforceable contract. According
to Homestyle, the form is simply “an administrative form
designed to collect necessary information regarding pro-
viders” and is not subject to the public contracting require-
ments of the state public contracting law.
To begin with, it is not clear that Homestyle pre-
served that particular contention. Before the ALJ and the
Court of Appeals, Homestyle argued that the provider agree-
ment was not an enforceable contract for two reasons—first,
because it amounted to an unlawful contract of adhesion
(an argument that it does not advance before this court),
and second, because it lacked consideration. There was no
mention of the argument that it now asserts, based on the
nature of the provider agreement form itself.
At all events, the argument is unavailing. Even
assuming for the sake of argument that Homestyle is correct
262 Homestyle Direct, LLC v. DHS
that the form was designed to collect necessary information
from providers, it cannot be contested that the form also
unambiguously states that “[t]he Home Delivered Meal
provider must comply with *  * the [HDM] standards” and
*
that “[c]ompliance is mandatory for payment.” Moreover,
the rules that require provider agreements state that the
signed form “constitutes agreement *  * to comply with all
*
applicable * * * Provider rules and federal and state laws and
regulations.” OAR 410-120-1260(2). Thus, whatever addi-
tional purposes the form may serve, it is clear that it con-
stitutes an enforceable agreement.
In the alternative, Homestyle argues that the pur-
ported agreement fails for want of consideration. In Homestyle’s
view, since 2005, it had operated under a provider agreement,
the terms of which the department attempted to alter in
2008 by simply substituting new HDM standards. The new
standards, Homestyle argues, amounted to an attempted
modification of the existing contract, which requires new con-
sideration. DHS argues, and the ALJ concluded, that the
department terminated the 2005 provider agreement in
2008 and then offered providers a new agreement with new
terms fully supported by the consideration of reimbursement
in exchange for agreement to comply with its terms. We
agree with DHS.
The formation of a contract requires a “bargain in
which there is a manifestation of mutual assent to the
exchange and a consideration.” Restatement (Second) of Con-
tracts § 17(1) (1981). Mutual assent, historically referred to
as the “meeting of the minds,” may be expressed in words or
inferred from the actions of the parties. Bennett v. Farmers
Ins. Co., 332 Or 138, 148, 26 P3d 785 (2001). Consideration
is defined as “some right, interest, profit or benefit or some
forbearance, deteriment, loss or responsibility given, suffered
or undertaken by the other.” Shelley v. Portland Tug & Barge
Co., 158 Or 377, 387, 76 P2d 477 (1938).
In this case, as we have described, in November
2008, DHS notified its providers that they would no longer be
eligible for Medicaid reimbursement for home delivery of meals
after January 31, 2009; the existing provider agreements, in
other words, were terminated. There is no suggestion that
Cite as 354 Or 253 (2013) 263
DHS lacked authority to do that. DHS then extended an
offer to enter into a new provider agreement. It included in
the information packet that it sent to all providers a new
provider enrollment application, which incorporated the new
HDM standards and expressly stated that participation in
the reimbursement program was conditioned on agreement
to comply with those standards. Homestyle completed that
new provider enrollment application, signed it, and returned
it to DHS. The parties thus manifested the required mutual
assent and satisfied the requisite element of consideration
when DHS offered to provide reimbursement in exchange for
Homestyle’s agreement to provide meals under the HDM pro-
gram and comply with the HDM standards, and Homestyle
accepted that offer by signing and returning the new provider
enrollment application, which expressly stated those terms.
2.  Whether the HDM Standards Are Enforceable as
Contract Terms
We turn, then, to the issue of the enforceability of
the HDM standards. Because the arguments of both parties,
as well as the reasoning of the Court of Appeals, largely turn
on the applicability of this court’s opinion in Coats, we begin
with a review of that case.
The plaintiff in Coats was a contractor who con-
structed and repaired highways in Oregon. 334 Or at 589. The
plaintiff contracted with the Oregon Department of Trans-
portation to pave a portion of a state highway. The contract
required the plaintiff to pay its workers in accordance with
wage and hour rules that had been adopted by the Oregon
Bureau of Labor and Industries (BOLI). Id. at 590. The
plaintiff did not comply with those rules. As a result, ODOT
withheld payment under the contract. Id. at 591.
The plaintiff responded by bringing an action against
ODOT for breach of contract in circuit court, alleging that
the BOLI wage and hour rules were invalid because they
were predicated on a misinterpretation of the applicable
wage and hour statutes. Id. at 591-92. ODOT counterclaimed
for breach of contract, and both parties moved for summary
judgment. Id. at 592.
264 Homestyle Direct, LLC v. DHS
The plaintiff argued that ODOT could not lawfully
bind him to comply with invalid BOLI wage and hour rules.
ODOT responded that, among other things, even if the BOLI
rules were invalid, the plaintiff was bound to comply with
them as terms of his highway contract. Id. at 593. The trial
court granted the plaintiff’s motion, denied ODOT’s motion,
and entered judgment accordingly. Id. The Court of Appeals
affirmed, agreeing with the plaintiff that the BOLI wage and
hour rules were invalid, at least as applied to the plaintiff,
because that application was at odds with relevant wage
and hour statutes. Coats v. ODOT, 170 Or App 32, 40-41,
11 P3d 258 (2000).
This court reversed, holding that the lower courts
lacked subject matter jurisdiction to address the validity of
BOLI’s administrative rule. The court explained that, as
a general rule, one who seeks to challenge the validity of
an administrative rule must do so in accordance with the
rule-challenge provisions of the APA. 334 Or at 595. The
plaintiff had not done that. The court noted, however, that
an earlier decision—Hay v. Dept. of Transportation, 301 Or
129, 719 P2d 860 (1986)—had recognized an exception to
that general rule: The validity of a rule may be challenged
in a civil action if validity is properly “ ‘at issue.’ ” Coats, 334
Or at 596 (quoting Hay, 301 Or at 138). The plaintiff in Coats
invoked that exception, arguing that his breach of contract
claim placed the validity of BOLI’s rules “at issue.” Id.
The court rejected that argument, concluding that
the validity of BOLI’s rules was simply “not relevant.” Id.
at 597. Even if the rules could not be enforced against the
plaintiff as rules, the court explained, they could still be
enforced against him as contract terms:
“Plaintiff * * * seeks to challenge the validity of state agency
rules that, earlier, he had agreed to as contract terms. Even
if plaintiff could not be forced to comply with those rules by
operation of law, he nonetheless could bind himself to do
so by contract, as he did here. Instead, the only relevant
question is whether BOLI’s rules are applicable to plaintiff
as contract terms. The validity of BOLI’s rules, therefore, is
not relevant to, or ‘at issue’ in, plaintiff’s breach of contract
action.”
Id. (emphasis in original; citations and footnotes omitted).
Cite as 354 Or 253 (2013) 265
Coats squarely controls this dispute. As in Coats, this
case involves what is essentially a breach of contract action:
DHS terminated Homestyle’s provider number because of
“[b]reaches of [the p]rovider agreement.” OAR 410-120-1260
(15)(b)(A). As in Coats, even assuming that Homestyle could
not be forced to comply with the HDM standards by operation
of law—that is, as rules—it nonetheless could bind itself to
do so by contract, as it did here. Accordingly, as in Coats,
the only relevant question is whether the HDM standards
are applicable to Homestyle as contract terms. It necessarily
follows that, as in Coats, the validity of the HDM standards,
as rules, is irrelevant.
As we have noted, the Court of Appeals, while
acknowledging that “broad language” in Coats supports the
notion that the validity of the HDM standards as rules is
irrelevant, nevertheless concluded that the decision was dis-
tinguishable. The court identified four rationales for that
conclusion. With respect, however, we find none of those
rationales to be persuasive.
First, the Court of Appeals noted that the BOLI
rules were invalid for a different reason from the invalid
HDM standards at issue in this case. According to the court,
“there is a difference between a rule that may be invalid
because it results from an agency’s misinterpretation of a
statute, the situation in Coats, and a rule that is invalid
because it was never promulgated.” Homestyle, 245 Or App
at 604. In the view of the Court of Appeals, DHS’s failure
to promulgate the HDM standards as rules implicated “one
of the basic precepts of administrative law: A rule that can
be brought to bear so as to impose serious disabilities on
citizens must, at the least, be subjected to some level of public
scrutiny before it goes into effect.” Id. (footnote omitted).
At the outset, we note that the court’s rationale pro-
ceeds from a mistaken premise. The court is not quite correct
in asserting that, before any rule can go into effect, it must
be subject to public scrutiny. Merely because a given admin-
istrative standard or policy satisfies the statutory definition
of a “rule” under the Administrative Procures Act (APA)
does not necessarily mean that it is invalid unless preceded
266 Homestyle Direct, LLC v. DHS
by notice and comment rulemaking proceedings. Most public
contracts, for example, are exempt from rulemaking pro-
cedures, even if they contain terms that otherwise qualify as
“rules.” See ORS 183.335(10). In addition, the APA provides
that agencies are authorized to adopt general policies that
otherwise would qualify as “rules” during contested case pro-
ceedings, without going through notice-and-comment rule-
making. See ORS 183.355(5) (“[I]f an agency, in disposing of
a contested case, announces in its decision the adoption of a
general policy applicable to such case and subsequent cases
of like nature, the agency may rely upon such decision in
disposition of later cases.”). Whether an agency is required
to adopt a policy that qualifies as a “rule” solely by means of
rulemaking procedures depends on whether the legislature
has declared that rulemaking is the sole acceptable means
of adopting the particular policy at issue. See, e.g., Forelaws
on Board v. Energy Fac. Siting Council, 306 Or 205, 214,
760 P2d 212 (1988) (“If an agency is required to adopt a rule
through rulemaking proceedings, that requirement must
be found through analysis of the specific statutory scheme
under which an agency operates and the nature of the rule
that the agency wishes to adopt.”); Trebesch v. Employment
Division, 300 Or 264, 267, 710 P2d 136 (1985) (Whether an
agency is required to engage in rulemaking may not be
“divined from the administrative procedures act;” rather,
“[t]he authorizing statutes will specify whether rulemaking
or adjudication authority, or both, are delegated to the
agency and will indicate the agency’s tasks, the breadth
of the agency’s discretion to carry out these tasks, and the
process by which they are to be accomplished.”).
Aside from that, the notion that the reason for the
invalidity of the rule makes a difference cannot be reconciled
with the stated rationale of Coats. This court explained that
whether the BOLI rules were invalid was irrelevant because
the parties had bound themselves to comply with the same
obligations by contract. Because the obligations were sep-
arately enforceable by contract, the reason for the possible
invalidity of the same obligation as an administrative rule
simply did not matter.
Cite as 354 Or 253 (2013) 267
Second, the Court of Appeals suggested that the
HDM standards at issue in this case are “significantly more
burdensome” than the allegedly invalid rule in Coats. 245 Or
App at 604. The relative burden that those rules imposed,
however, was not mentioned as a relevant consideration in
Coats, and we do not understand how it would be relevant to
Coats’s stated rationale, which was that parties are bound
to comply with obligations that they agree to comply with by
contract, regardless of whether they might also be bound to
comply for other reasons.
Third, the Court of Appeals differentiated between
the focus of the breach of contract action in Coats and the
focus of this action, which the court characterized as a “rule
challenge as part of the defense to an agency action to
enforce a rule.” Id. The court stated that, in a breach of con-
tract action, the focus is on “whether the parties to the
contract have honored the mutual obligations that they
have undertaken.” Id. The court observed that, “[i]n a rule
challenge that is a part of the defense to an agency action to
enforce a rule, * * * the focus is on whether the agency’s rule
is within its authority, and the fact that the rule has been
rebranded as a contract term does not alter that basic fact.”
Id.
Again, the court’s reasoning proceeds from a mis-
taken premise, which is that DHS has merely “rebranded”
the HDM standards as contract terms. The fact is that they
were contract terms. Aside from that, it is not clear to us
that the action in this case is properly characterized as a
“rule enforcement” proceeding. The assumption that it is
a rule enforcement proceeding appears to beg the ques-
tion whether it is an administrative rule or a contract term
that is at issue in the first place. Moreover, contrary to the
characterization of the Court of Appeals, Homestyle has not
asserted a rule challenge as a defense to an agency action to
enforce a rule. DHS did not initiate this action to enforce any
administrative rule. Homestyle initiated the contested case
proceeding to challenge DHS’s revocation of Homestyle’s
provider number because of its “[b]reach of [the] [p]rovider
agreement.”
268 Homestyle Direct, LLC v. DHS
Fourth, and relatedly, the Court of Appeals com-
pared the relatively attenuated connection between the
invalidity of the BOLI rules and the breach of contract
action in Coats with the more direct connection between the
invalidity of the HDM standards and the DHS action in this
case. “In an agency action to enforce a contract term that is
itself an invalid rule,” the court reasoned, “the connection is
direct.” Id. at 597 (emphasis omitted).
Once again, the Court of Appeals assumed that DHS
initiated this action to enforce an administrative rule, which
is incorrect. Moreover, even assuming that this is, as the
court characterized it, “an agency action to enforce a contract
term that is itself an invalid rule,” the fact remains that,
under Coats, the validity or invalidity of a rule as a rule is
irrelevant if the agency seeks to enforce the obligation as a
contract term.
Homestyle offers its own rationale for distinguishing
Coats. According to Homestyle, Coats “should be viewed as an
aberration” and should be narrowly confined to its facts. In
particular, Homestyle emphasizes that the contract in Coats
was a “bilateral bargained-for-exchange contract,” while the
contract at issue in this case “can, at best, be described as a
series of unilateral contracts.” In support of that proposition,
Homestyle cites this court’s opinion in Pharmaceutical Ass’n
v. Welfare Com., 248 Or 60, 432 P2d 296 (1967). The distinc tion
is important, Homestyle explains, because, in a unilateral
contract such as this one, “the state agency enjoys an unequal
bargaining position.” In Homestyle’s view, that unequal bar-
gaining position leaves contracting parties with no recourse
but the rulemaking safeguards of the APA, should they wish
to contest particular terms of the agreement.
Homestyle’s argument, too, is predicated on a mis-
taken premise, namely, that the agreement in this case is
a unilateral contract. A unilateral contract is one in which
one party makes a promise in return for consideration other
than a promise. Restatement (Second) of Contracts § 45 (1981).
Pharmaceutical Ass’n provides an example. In that case, the
State Public Welfare Commission simply offered to reim-
burse any pharmacist that provided prescription drugs to
eligible recipients of public assistance for stipulated prices
Cite as 354 Or 253 (2013) 269
published in a “Drug Guide”; the Commission required no
promise or commitment in advance. 248 Or at 64-65. As the
court explained:
“We think it is clear that * * * we are dealing here with
a unilateral contract, or, to be more exact, a series of such
contracts. The Commission, through the Drug Guide, made
a continuing offer to the druggists to pay them stipulated
prices for drugs dispensed to eligible recipients of public
assistance and each and every such transaction carried
out by the druggists in accordance with the regulations in
the Drug Guide constituted acceptance of the offer and an
executed contract supported by valuable consideration.”
Id. at 67.
This is not such a case. The provider agreement at
issue in this case expressly consisted of a one promise in
exchange for another: DHS agreed to provide Medicaid
reimbursement in exchange for Homestyle’s agreement to
comply with, among other things, the HDM standards in
delivering meals to recipients. Thus, the agreement in this
case is not a unilateral contract of the sort at issue in
Pharmaceutical Ass’n. It is, instead, the same sort of bilateral
contract that was at issue in Coats.
Finally, Homestyle argues that Coats is distin-
guishable because the contracting party in that case “was
apparently aware of ODOT’s interpretation of the contested
rule before entering into the contract,” while in this case,
“Homestyle did not have actual knowledge of the new stan-
dards until receiving a letter indicating that they were in
violation of the standards.” According to Homestyle, “[t]o
the extent that Coats provides a judicially created excep-
tion to the general statutory rulemaking requirements, its
holding should be limited” to cases in which the contracting
parties had notice of the terms an agency seeks to enforce by
contract.
Once again, Homestyle appears to be advancing an
argument for the first time on review; we have searched the
record in vain for any such argument made to the ALJ or to
the Court of Appeals. In any event, the argument fails. As
we have noted, it is undisputed that DHS notified all HDM
providers of the new standards in November 2008, a full
270 Homestyle Direct, LLC v. DHS
two months before the new standards were scheduled to go
into effect. The notification included a packet of information
that contained a copy of the new standards, a new provider
enrollment form, and a cover letter explaining the new rules,
declaring that, “[b]y signing the provider enrollment form,
providers agree to meet the *  * [HDM] standards,” and
*
warning that “[c]ompliance is mandatory for payment.” It
is further undisputed that Homestyle received that packet
of information and that its owner signed and returned the
new provider enrollment form. We reject Homestyle’s final
argument without further discussion.
In sum, we conclude that department’s final order
correctly determined both that the 2008 provider agreement
was an enforceable contract and that the HDM standards
with which the agreement required compliance were enforce-
able as terms of that agreement. The Court of Appeals erred in
concluding that those standards were unenforceable because
they were unpromulgated administrative rules.
The decision of the Court of Appeals is reversed.
The final order of the Department of Human Services is
affirmed.