Mountain Regional Services, Inc. v. State of Wyoming, ex rel., Department of Health , 2014 Wyo. LEXIS 73 ( 2014 )

IN THE SUPREME COURT, STATE OF WYOMING
2014 WY 69
APRIL TERM, A.D. 2014
May 29, 2014
MOUNTAIN REGIONAL SERVICES, INC.,
Appellant
(Petitioner),
v.
No. S-13-0198
STATE OF WYOMING, ex rel., DEPARTMENT
OF HEALTH,
Appellee
(Respondent).
Appeal from the District Court of Uinta County
The Honorable Dennis L. Sanderson, Judge
Representing Appellant:
Ariel C. Calmes and Mark W. Harris, Harris Law Office, P.C., Evanston,
Wyoming. Argument by Ms. Calmes.
Representing Appellee:
Peter K. Michael, Attorney General; Robin Sessions Cooley, Deputy Attorney
General; Clyde W. Hutchins, Jr., Senior Assistant Attorney General. Argument by
Mr. Hutchins.
Before KITE, C.J., and HILL, BURKE, DAVIS, and FOX, JJ.
NOTICE: This opinion is subject to formal revision before publication in Pacific Reporter Third. Readers
are requested to notify the Clerk of the Supreme Court, Supreme Court Building, Cheyenne, Wyoming
82002, of any typographical or other formal errors so that correction may be made before final publication in
the permanent volume.
BURKE, Justice.
[¶1] Mountain Regional Services, Inc., (MRSI) provides services to individuals who
receive certain medical benefits administered by the Wyoming Department of Health.
The Department issued a “Provider Bulletin” concerning these benefits, and MRSI filed a
petition in the district court seeking judicial review of the bulletin. The Department filed
a motion to dismiss, which the district court granted on the bases that the matter was not
ripe and MRSI did not exhaust its administrative remedies before seeking judicial review.
MRSI appealed the dismissal. We will affirm the district court’s ruling.
ISSUES
[¶2] MRSI presents a single issue:
1. Did the district court act contrary to law when it
dismissed MRSI’s petition for judicial review for failure to
exhaust administrative remedies?
The Department presents two issues:
1. Should MRSI’s petition for judicial review be
dismissed for lack of ripeness?
2. Should MRSI’s petition for judicial review be
dismissed for failure to exhaust administrative remedies?
FACTS
[¶3] Pursuant to the Wyoming Medical Assistance and Services Act, 1 Wyoming’s
Department of Health pays for medical services and supplies received by eligible adults
and children with intellectual disabilities or acquired brain injuries. MRSI provides
services to the individuals who participate in these programs. The Department
establishes a budget for each individual who receives benefits through these programs. A
request to increase the budget amounts may be submitted on behalf of an individual
receiving benefits. The Department may approve such an increase for a variety of listed
reasons.
[¶4] On January 9, 2013, the Department issued a “Provider Bulletin” with information
1
Wyo. Stat. Ann. § 42-4-101 through § 42-4-208 (LexisNexis 2013).
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about applying for increased benefits, and about factors the Department will consider
when deciding to grant or deny such an application. On February 8, 2013, MRSI filed a
petition for review in which it challenged the validity of the bulletin. Its primary
contention was that the bulletin grants the Department “discretion as to whether to review
any request for additional funding,” in contradiction to the Department’s regulations
making such review mandatory.
[¶5] The Department filed a motion to dismiss. MRSI opposed the motion. After a
hearing, the district court concluded that the matter was not ripe for judicial review, and
that MRSI had not exhausted its administrative remedies prior to filing its petition for
review. The district court granted the motion to dismiss, and MRSI appealed that
decision.
DISCUSSION
[¶6] As a preliminary step in resolving this case, it is helpful to review the distinction
between substantive rules and interpretive rules. In the administrative law context:
A substantive rule or “legislative-type rule” is one “affecting
individual rights and obligations”; it is the administrative
equivalent of a statute, compelling compliance with its
terms. . . . Substantive rules . . . create law just as the statute
itself does, by changing existing rights and obligations. An
interpretive rule is a clarification or explanation of existing
laws or regulations, rather than a substantive modification of
them. Interpretive rules are statements as to what the agency
thinks a statute or regulation means; they are statements
issued to advise the public of the agency’s construction of the
law it administers.
Bernard Schwartz, Administrative Law § 4.6, 158-59 (2d ed. 1984) (footnotes omitted).
See also Battlefield, Inc. v. Neely, 656 P.2d 1154, 1159-60 (Wyo. 1983). The Wyoming
Administrative Procedure Act recognizes the two types of rules, providing that specific
procedures must be followed in order to adopt, amend, or repeal a substantive rule, while
“interpretative rules or statements of general policy” are exempt from these formal
procedures. Wyo. Stat. Ann. § 16-3-103(a).
[¶7] In this case, the Department characterizes the bulletin as an interpretive rule. That
is why it issued the bulletin informally instead of following the formal procedures for
promulgating a substantive rule. The Department’s substantive regulations provide for
the issuance of interpretive rules in the form of manuals or bulletins:
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The [Department] may issue Provider Manuals, Provider
Bulletins, or both, to providers and/or other affected parties to
interpret the provisions of this Chapter. Such Provider
Manuals and Provider Bulletins shall be consistent with and
reflect the policies contained in this Chapter. The provisions
contained in Provider Manuals or Provider Bulletins shall be
subordinate to the provisions of this Chapter.
Wyoming Department of Health, Medicaid Rules, ch. 41, § 2(c).
[¶8] MRSI contends, to the contrary, that the bulletin is a substantive rule issued
“under the guise of a provider bulletin.” According to MRSI, the bulletin grants
discretion to refuse to review a request for additional funding, which is inconsistent with
existing regulations requiring the Department to review such requests. It was improper
for the Department to promulgate this change, MRSI asserts, without following the
formal procedures required for the promulgation of substantive rules.
[¶9] The district court concluded that the issue was not ripe for adjudication, and so did
not decide whether the bulletin constitutes a substantive rule or an interpretive rule.
However, a substantive rule is subject to judicial review whether or not the rule has been
applied, while an interpretive rule “is not subject to judicial review unless it is relied upon
or applied to support an agency action in a particular case.” American Tort Reform Ass’n
v. Occupational Safety & Health Admin., 738 F.3d 387, 390 (D.C. Cir. 2013).2
Accordingly, it is necessary to decide whether the bulletin is a substantive rule or an
interpretive rule in order to determine whether the district court was correct that MRSI’s
petition was not ripe for judicial review.
[¶10] Whether a rule is substantive or interpretive “is largely a legal, not a factual,
question.” General Electric Co. v. Environmental Protection Agency, 290 F.3d 377, 380
(D.C. Cir. 2002). It does not matter how the agency characterizes the rule. American
Tort Reform, 738 F.3d at 395 (“[I]f an agency issues a statement that is labeled an
interpretative rule . . . and it has all of the indicia of a [substantive] rule, then the rule will
be subject to [judicial] review.”). What matters is the legal effect of the rule.
[¶11] The distinction between substantive rules and interpretive rules has been
2
In situations where the Wyoming Administrative Procedure Act contains provisions similar to those of
the federal Administrative Procedure Act, we have recognized the persuasive authority of federal
precedent. See, e.g., Story v. Wyoming State Board of Medical Examiners, 721 P.2d 1013, 1019 (Wyo.
1986). Both Acts provide that substantive rules are subject to formal rulemaking procedures, but
interpretive rules are not. Compare Wyo. Stat. Ann. § 16-3-103(a), with 5 U.S.C.A. § 553(b).
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characterized as tenuous, blurred, and fuzzy. McLouth Steel Products Corp. v. Thomas,
838 F.2d 1317, 1320 (D.C. Cir. 1988). However, the key distinction is that substantive
rules have binding legal effect, while interpretive rules do not. An agency is legally
required to comply with its substantive rules, while an interpretive rule gives the agency
discretion to apply it or not. Id. In Battlefield, Inc., 656 P.2d at 1159, we quoted this
explanation:
In Schwartz, Administrative Law, § 58, p. 154, the author
says:
“* * * * A substantive rule is the administrative
equivalent of a statute, compelling compliance with its
terms on the part of those within the agency ambit.
Substantive rules are issued pursuant to statutory
authority and implement the statute; they create law
just as the statute itself does, by changing existing
rights and obligations. An interpretative rule is a
clarification or explanation of existing laws or
regulations, rather than a substantive modification of
them. Interpretative rules are statements as to what the
agency thinks a statute or regulation means; they are
statements issued to advise the public of the agency’s
construction of the law it administers.”
(Emphasis omitted.) See also Wyoming Mining Ass’n v. State, 748 P.2d 718, 724 (Wyo.
1988) (“[I]nterpretive rules and general statements of policy do not establish binding
norms which are finally determinative of anyone’s rights.”); In re Matter of GP, 679 P.2d
976, 997 (Wyo. 1984) (“We hold, then, that Natrona County DPASS was not bound by
the interpretative rule or guideline in the Social Services Manual, since the guideline was
not the equivalent of a duly promulgated rule or regulation having the force of law.”).
[¶12] There are two criteria for identifying an interpretive rule. First, an interpretive
rule is one that “does not have ‘a present-day binding effect,’ that is, it does not ‘impose
any rights and obligations.’” Second, an interpretive rule “‘genuinely leaves the agency
and its decisionmakers free to exercise discretion.’” McLouth Steel Products, 838 F.2d at
1320 (quoting Community Nutrition Institute v. Young, 818 F.2d 943, 946 & n.4 (D.C.
Cir. 1987)).
[¶13] We now apply that test to the Department’s bulletin. In paragraph 7 above, we
quoted the Department’s Medicaid Rule providing that the Department may issue
manuals or bulletins “to interpret the provisions of this Chapter.” This Rule requires such
manuals and bulletins to be “consistent with and reflect the policies” of the Rules, and
explicitly provides that manuals and bulletins “shall be subordinate” to the Rules.
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Accordingly, if there is a conflict between the bulletin and the Rules, as MRSI contends,
the bulletin is subordinate to the Rules. The Department is legally bound to comply with
the Rules, but not with any inconsistent provision of the bulletin. Under the
Department’s regulations, the bulletin lacks binding effect, and the Department has
discretion to vary from the subordinate provisions of the bulletin. We therefore conclude
that the bulletin is an interpretive rule, not a substantive rule.
[¶14] The rule set forth in American Tort Reform, 738 F.3d at 390, is that an interpretive
rule is not ripe for judicial review until after it is applied or relied upon by the
Department. Because an agency is not legally bound to comply with an interpretive rule,
it may or may not follow it in any particular case. “A claim is not ripe for adjudication if
it rests upon contingent future events that may not occur as anticipated, or indeed may not
occur at all.” Id. (quoting Texas v. United States, 523 U.S. 296, 300, 118 S. Ct. 1257,
1259, 140 L. Ed. 2d 406 (1998)). We will apply the rule from American Tort Reform in
this case because its reasoning is consistent with our previous discussions regarding
ripeness in the context of agency decisions:
The doctrine of ripeness is a judicially created
limitation of the availability of judicial review in
administrative law cases.
[I]ts basic rationale is to prevent the courts, through
avoidance of premature adjudication, from entangling
themselves in abstract disagreements over
administrative policies, and also to protect the agencies
from judicial interference until an administrative
decision has been formalized and its effects felt in a
concrete way by the challenging parties.
Abbott Laboratories v. Gardner, 387 U.S. 136, 148-149, 87
S. Ct. 1507, 1515, 18 L. Ed. 2d 681, 691-692 (1967).
BHP Petroleum Co. v. State, 766 P.2d 1162, 1164-65 (Wyo. 1989).
[¶15] We also said in BHP Petroleum that we “evaluate ripeness in two prongs, which
include, first, an evaluation of the fitness of the issues presented for judicial review and,
second, an evaluation of the hardship to the parties if judicial review is denied.” Id. at
1165. Our conclusion that the bulletin is an interpretive rule, not legally binding on the
Department, indicates that the issues presented are not fit for judicial review. MRSI
maintains, however, that judicial review should be allowed because of the hardship it will
suffer if judicial review is denied. MRSI contends that it will suffer harm that is “capable
of repetition, yet evading review.” We note that in the case cited by MRSI, Spencer v.
Kemna, 523 U.S. 1, 17, 118 S. Ct. 978, 988, 140 L. Ed. 2d 43 (1998), this doctrine was
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invoked to avoid mootness, not lack of ripeness. This is usually the case. See, e.g.,
Operation Save America v. City of Jackson, 2012 WY 51, ¶ 23, 275 P.3d 438, 449 (Wyo.
2012) (“If a case presents a ‘controversy capable of repetition yet evading review,’ we
may rule on the matter despite its technical mootness.”). Still, we can use similar
concepts to evaluate MRSI’s position as to the hardship of denying judicial review.
[¶16] MRSI contends that the bulletin provides the Department “discretion as to whether
to review any request for additional funding.” MRSI postulates that the Department may
invoke this discretion and refuse to review an application for increased benefits, “and
then attempt to avoid the court’s purview by arguing, as it did in its Motion to Dismiss in
the current proceeding, that no appealable agency action has occurred.” However,
“Wyoming case law holds that after a reasonable period of time, agency inaction is
deemed a denial of a request, so as to authorize judicial review of agency inaction under
the Administrative Procedure Act.” Town of Evansville Police Dep’t v. Porter, 2011 WY
86, ¶ 11, 256 P.3d 476, 481 (Wyo. 2011). This rule is also embodied in our statutes.
Wyo. Stat. Ann. § 16-3-114 expressly provides for judicial review of “agency action or
inaction.” It is further confirmed in our appellate rules. W.R.A.P. 12.01 expressly
applies to “agency action or inaction.”
[¶17] The Department’s substantive rules provide that an applicant may request an
administrative hearing “if the application is denied or not acted upon within the time
frames as specified by the Department rules.” Wyoming Medicaid Rules, ch. 4, § 4(a).
If an application is not reviewed by the Department, MRSI can seek an administrative
hearing. If an administrative hearing is delayed for an unreasonable period of time,
MRSI may file a petition for judicial review of the Department’s inaction. Harris v.
Schuetz, 948 P.2d 907, 908 (Wyo. 1997). The issues raised by MRSI will not evade
review, and in the meantime, MRSI will suffer no harm by the denial of judicial review.
Our analysis under the second prong of the ripeness test confirms our conclusion that this
case is not ripe for review.
[¶18] Because the district court correctly concluded that the matter was not ripe for
review, it properly granted the Department’s motion to dismiss MRSI’s petition for
judicial review. It is therefore unnecessary to consider the issue of exhaustion of
administrative remedies. The district court’s order dismissing MRSI’s petition for
judicial review is affirmed.
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