Baptist Health Med. Sys. v. Rutledge

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SUPREME COURT OF ARKANSAS
No. CV-15-616
Opinion Delivered: March 17, 2016
BAPTIST HEALTH SYSTEMS, MERCY
HEALTH SYSTEM, AND WASHINGTON
REGIONAL MEDICAL CENTER APPEAL FROM THE PULASKI
APPELLANTS/CROSS-APPELLEES COUNTY CIRCUIT COURT
[60CV-14-2218]
V.
LESLIE RUTLEDGE, ARKANSAS HONORABLE TIMOTHY DAVIS
ATTORNEY GENERAL; ARKANSAS FOX, JUDGE
DEPARTMENT OF HEALTH; AND
NATHANIEL SMITH, MD, MPH,
DIRECTOR REVERSED ON CROSS-APPEAL;
APPELLEES/CROSS-APPELLANTS DIRECT APPEAL DISMISSED.
ROBIN F. WYNNE, Associate Justice
At issue in this appeal is Act 766 of 2013, known as the Arkansas Peer Review
Fairness Act (the Act). Act of Apr. 5, 2013, No. 766, 2013 Ark. Acts 2890 (codified at Ark.
Code Ann. § 20-9-1301 (Repl. 2014)). Before the Pulaski County Circuit Court, the case
was decided on competing motions for summary judgment. The hospitals appealed, and
the defendants cross-appealed. The Arkansas Hospital Association and the Arkansas Medical
Society have filed amicus curiae briefs. We reverse the circuit court’s denial of the defendants’
motion for summary judgment as to whether this case presents a justiciable controversy, and
we dismiss the direct appeal.
The appellants, plaintiffs below, are three Arkansas corporations that operate private
hospitals in the state (the Hospitals). In June 2014, the Hospitals filed a complaint for
declaratory judgment in the Pulaski County Circuit Court seeking a judgment declaring the
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Act unconstitutional under the Arkansas and United States Constitutions. 1 The complaint
named the following parties as defendants: the Attorney General 2 in his official capacity;
the Arkansas Department of Health; and Nathaniel Smith, MD, MPH, Director. The
defendants answered, denying that they were proper parties to this action, denying that the
Act is unconstitutional, and pleading various affirmative defenses. Eventually, the parties
filed competing motions for summary judgment. No hearing was held, and the circuit court
entered two separate orders on April 24, 2015. The circuit court denied paragraph four of
the defendants’ motion for summary judgment, which stated as follows:
This Court should also enter summary judgment in favor of the state defendants
because plaintiffs lack standing to file this declaratory judgment action. There is no
justiciable controversy between plaintiffs and these state defendants, and plaintiffs’
declaratory judgment complaint is not ripe for consideration.
Without elaboration, the circuit court ruled that the Act is not unconstitutional for
the following reasons: the Act is not pre-empted by federal law; the Act does not
unconstitutionally treat the Hospitals differently from other healthcare entities; the Act does
not restrict the Hospitals’ right to retain the attorney of their choice; the Act does not
unconstitutionally interfere with the exclusive jurisdiction of Arkansas courts to regulate the
practice of law; and the Act is not unconstitutionally vague and ambiguous. The Hospitals
filed a timely notice of appeal; the defendants filed a timely notice of cross-appeal.
1
Alternatively, appellants sought a declaration regarding the proper construction of
the Act; however, the circuit court did not rule on this claim and appellants expressly
abandoned any pending but unresolved claims in their notice of appeal. See Ark. R. App.
P.–Civ. 3(e)(vi) (2015).
2
During this case, Attorney General Dustin McDaniel was replaced by our current
attorney general, Leslie Rutledge.
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Cross-Appeal: Is this a proper declaratory judgment action?
Peer review is a process for monitoring quality and improving care within a
healthcare institution. See Ark. Code Ann. § 20-9-1302(a)(1). It was addressed by Congress
in 1986 with the passage of the Health Care Quality Improvement Act (HCQIA), codified
at 42 U.S.C. §§ 11101 et seq. Generally speaking, HCQIA provides immunity from liability
for civil damages for those who participate in a professional-review action and meet the
standards set forth in HCQIA (regarding the purpose of the action, notice and hearing, and
procedures). See 42 U.S.C. § 11111. In 2013, our General Assembly passed the Act,
codified at Ark. Code Ann. §§ 20-9-1301 to -1308. Arkansas Code Annotated section 20-
9-1302 provides as follows:
(a) The General Assembly finds that:
(1) The peer review process is well established as the most important and effective
means of monitoring quality and improving care within an institution;
(2)(A) Peer review is essential to preserving the highest standards of medical practice.
(B) However, peer review that is not conducted fairly results in harm to both patients
and physicians by limiting access to care and patient choice; and
(3) It is necessary to balance carefully the rights of patients who benefit by peer review
with the rights of those who may be harmed by improper peer review.
(b) The General Assembly intends that peer review be conducted fairly for the benefit
of the citizens of the State of Arkansas.
The Act provides that “[p]rofessional review activity shall be conducted and professional
review actions shall be taken in compliance with the requirements of the Health Care
Quality Improvement Act of 1986, 42 U.S.C. § 11101 et seq., and the additional
requirements of [the Act].” Ark. Code Ann. § 20-9-1304(a).
The defendants/cross-appellants argue that they are improper parties to this suit and
that the Hospitals do not have standing to obtain declaratory relief. With regard to obtaining
declaratory relief, the defendants argue that there is no justiciable controversy, there is no
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actual controversy between adverse parties, and the issues are not ripe. Because the
arguments under these two points overlap, we address them together.
Our declaratory-judgment statute provides that “[a]ny person . . . whose rights,
status, or other legal relations are affected by a statute . . . may have determined any question
of construction or validity arising under the . . . statute. . . and obtain a declaration of rights,
status, or other legal relations thereunder.” Ark. Code Ann. § 16-111-104 (Repl. 2006).
While this section recognizes a party’s right to a declaratory judgment, a justiciable
controversy is required. McGhee v. Arkansas State Bd. of Collection Agencies, 375 Ark. 52, 57–
58, 289 S.W.3d 18, 23 (2008). Declaratory relief will lie where: (1) there is a justiciable
controversy; (2) it exists between parties with adverse interests; (3) those seeking relief have
a legal interest in the controversy; and (4) the issues involved are ripe for decision. Id. On
appeal, the question of whether there was a complete absence of a justiciable issue shall be
reviewed de novo on the record of the circuit court. Id.
Here, the defendants argue that there is no justiciable controversy because there is
no present danger or dilemma, citing the Hospitals’ references throughout their brief to
hypothetical future events. Indeed, the Hospitals do not state that they are violating the
Act, and they have not alleged a threat of imminent enforcement under the Act. A
declaratory judgment “does not undertake to decide the legal effect of laws upon a state of
facts which is future, contingent or uncertain.” McLane S., Inc. v. Arkansas Tobacco Control
Bd., 2010 Ark. 498, at 28–29, 375 S.W.3d 628, 647. Similarly, we have stated that
[t]he Declaratory Judgment Statute is applicable only where there is a present actual
controversy, and all interested persons are made parties, and only where justiciable
issues are presented. It does not undertake to decide the legal effect of laws upon a
state of facts which is future, contingent or uncertain.
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McCutchen v. City of Fort Smith, 2012 Ark. 452, at 15, 425 S.W.3d 671, 681 (quoting
Cummings v. City of Fayetteville, 294 Ark. 151, 154–55, 741 S.W.2d 638, 639–40 (1987)).
Here, the Hospitals argue that the Act imposes a present and ongoing injury to them in that
it creates new standards with which they must comply during the peer-review process. We
disagree that a justiciable controversy has been presented for our review. See Jegley v. Picado,
349 Ark. 600, 622, 80 S.W.3d 332, 343 (2002) (finding a justiciable controversy regarding
constitutionality of the sodomy statute where the plaintiffs admitted to violating the statute
and the actions of state prosecutors in declining to prosecute “ could effectively bar shut the
courthouse doors and protect the sodomy statute from constitutional challenge”). After
carefully considering the parties’ arguments on this point, we conclude that the requirement
of a justiciable controversy is not present in this case.
In sum, appellants ask this court to determine whether the Act, which presents an
entire statutory scheme, is unconstitutional without any present controversy to examine.
The only evidence before the circuit court on the cross-motions for summary judgment was
an affidavit of the Director of the Department of Health and a portion of the Hospitals’
responses to appellees’ first set of requests for admissions. Without a sufficient factual record
to show an actual, present controversy, this court cannot opine on the merits of the
constitutional arguments raised in the Hospitals’ declaratory-judgment suit. Because a
justiciable controversy is a necessary element of a declaratory-judgment suit and that element
is lacking in this case, it is unnecessary to address the other requirements for obtaining
declaratory relief. Similarly, we do not reach the issues presented on direct appeal.
Reversed on cross-appeal; direct appeal dismissed.
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DANIELSON and WOOD, JJ., dissent.
PAUL E. DANIELSON, Justice, dissenting. I respectfully dissent. I disagree with
the majority’s holding that this is not a proper declaratory-judgment action. Declaratory
judgments are used to determine the rights and liabilities of respective parties. Nelson v.
Ark. Rural Med. Practice Loan & Scholarship Bd., 2011 Ark. 491, 385 S.W.3d 762 (citing Stilley
v. James, 345 Ark. 362, 48 S.W.3d 521 (2001)). The purpose of the declaratory-judgment
statutory scheme “is to settle and to afford relief from uncertainty and insecurity with respect
to rights, status, and other legal relations.” Nelson, 2011 Ark. 491, at 11, 385 S.W.3d at 769
(quoting Ark. Code Ann. § 16-111-102 (Repl. 2006)).
In order to obtain declaratory relief, the requisite precedent facts or conditions
generally held to be required are as follows:
(1) [A] justiciable controversy, that is to say, a controversy in which a claim of right
is asserted against one who has an interest in contesting it; (2) the controversy must
be between persons whose interests are adverse; (3) the party seeking declaratory
relief must have a legal interest in the controversy; in other words, a legally
protectable interest; and (4) the issue involved in the controversy must be ripe for
judicial determination.
Nelson, 2011 Ark. at 11, 385 S.W.3d at 769 (quoting MacSteel Div. of Quanex v. Ark.
Okla. Gas Corp., 363 Ark. 22, 35, 210 S.W.3d 878, 886 (2005)).
The majority holds that there is no justiciable controversy, and therefore, this case
does not meet the first requirement for a declaratory-judgment action. After this
determination, the majority finds it unnecessary to discuss the three remaining
requirements. I would hold that all of the requirements for a declaratory-judgment action
have been met.
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First, I do not agree that there is no justiciable controversy in this case. There is
clearly a present and ongoing injury to the Hospitals in that the Arkansas Peer Review
Fairness Act (the “Act”) creates new standards with which the Hospitals must comply
during the peer-review process. The prejudice to the Hospitals’ position is “actual and
genuine and not merely possible, speculative, contingent, or remote.” Jegley v. Picado, 349
Ark. 600, 618, 80 S.W.3d 332, 340 (2002) (quoting Cummings v. City of Fayetteville, 294
Ark. 151, 155, 741 S.W.2d 638, 640 (1987)). Because a justiciable controversy exists, I
would address the remaining requirements for a declaratory-judgment action.
The Hospitals have a legal interest in this controversy because, if the Act is
constitutional, then they could be subject to liability by failing to comply. Conversely, if
the Act is unconstitutional, they are being forced to comply with unconstitutional law.
The Arkansas Attorney General has an adverse legal interest in defending the
constitutionality of the State’s statutes. The Arkansas Department of Health and Dr.
Smith have an interest pursuant to the authority granted to the Department and its
Director to promulgate rules and regulations applying to hospitals. Finally, the issues are
ripe for judicial determination because they are based on present and ongoing injuries to
the Hospitals, and not future, hypothetical events.
Because this case is a proper declaratory-judgment action, I would reach the issues
presented on direct appeal.
RHONDA K. WOOD, Justice, dissenting. This case presents a live, justiciable
controversy, and I would reach the merits of the hospitals’ appeal. One purpose of a
declaratory-judgment action is for a party to seek a declaration of its rights before waiting
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to be sued. These actions eliminate legal uncertainty and promote efficiency. But under the
majority’s view, the hospitals must wait to be sued before they can know their rights under
the Peer Review Fairness Act. This result subverts the purpose of the declaratory-judgment
action, something that for all practical purposes the hospitals cannot enjoy. I respectfully
dissent.
The Peer Review Fairness Act imposes a number of duties on hospitals regarding the
physician-credentialing process. The duties attach once a “professional review activity”
begins. A professional review activity includes “investigations,” which are defined as “a
process conducted by a professional review body to obtain facts related to a concern or
complaint about a physician in order to determine whether a professional review action
should be requested or recommended.” Ark. Code Ann. § 20-9-1303(4), (7) (Repl. 2014).
Any time a “professional review activity” or “investigation” begins, a hospital must give
notice to the doctor, include the doctor’s attorney in the fact-finding process, provide
exculpatory information, and allow the doctor to lobby the peer review body. Ark. Code
Ann. § 20-9-1304. Should the hospitals fail to comply with their duties, a doctor could sue
for an injunction and attorney’s fees. Ark. Code Ann. § 20-9-1307(a), (b). Thus, the
hospitals’ obligations arise in the ordinary course of business: anytime someone complains
about a doctor—and the hospital seeks to find facts—a whole host of obligations arises. The
hospitals need to know what the law requires them to do or whether the law, or portions
of it, is unconstitutional. For this reason, this action is tailor-made for a declaratory
judgment.
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One type of declaratory-judgment action allows “a person threatened with liability
or uncertain of his or her rights and obligations [to] seek[] a judicial determination of the
issue rather than waiting to be sued.” David Newbern et al., Arkansas Civil Practice and
Procedure § 36:1 (5th ed. 2010). A declaratory judgment is especially appropriate in disputes
between private citizens and public officials about the meaning of the constitution or of
statutes. McDonald v. Bowen, 250 Ark. 1049, 1051, 468 S.W.2d 765, 767 (1971). In this way,
some citizens have brought suit against the State and have requested that the court declare
certain laws unconstitutional. See, e.g., McGee v. Ark. State Bd. of Collection Agencies, 375
Ark. 52, 289 S.W.3d 18 (2008) (Check-Cashers Act); Jegley v. Picado, 349 Ark. 600, 80
S.W.3d 332 (2002) (anti-sodomy statute).
Jegley is a central case on standing to bring a declaratory judgment. There, plaintiffs
brought a declaratory-judgment action against the State, through the prosecuting attorney,
and requested that the court declare the anti-sodomy statute unconstitutional. Jegley, 349
Ark at. 608, 80 S.W.3d at 334. In response, the State argued that no justiciable controversy
existed because the plaintiffs had not been threatened with prosecution under the statute,
which in any event had lain dormant for fifty years. Id. at 611–12, 80 S.W.3d at 336–37.
We found that a justiciable controversy existed, however, because plaintiffs “intend[ed] to
engage in future behavior that violates the law and . . . the State has not disavowed any
intention of invoking the criminal-penalty provisions of [the law].” Id. at 622, 80 S.W.3d
at 343.
Like the plaintiffs in Jegley, the hospitals are presently engaged in conduct regulated
by statute. Without question, complaints are filed routinely against doctors—in response,
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the hospital conducts fact-finding. Such an event likely triggers the hospitals’ duties under
the Act. And unlike Jegley, where the justiciability question was close due to the statute’s
dormancy, this Act and its federal counterpart are often invoked; indeed, an entire regulatory
apparatus exists on both the state and federal level regarding the issue of peer review. See
generally Health Care Quality Improvement Act of 1986, 42 U.S.C. §§ 11101-11152. It’s
neither theoretical nor hypothetical that peer-review activity does and will continue to take
place. One study estimates that around 1000 peer-review actions were reported to a national
database annually between 2002 and 2005. See Eleanor D. Kinney, Hospital Peer Review of
Physicians: Does Statutory Immunity Increase Risk of Unwarranted Professional Injury?, 13 Mich.
St. U. J. Med. & L. 57, 79 (2009). Plainly, before a “peer review action” or negative
credentialing recommendation takes place, there must be a “peer review activity” or
investigation. So if there are 1000 “peer review actions” per year, then it’s safe to assume
that there are many more “peer review activities.”
This observation leads to another point: the majority claims that the hospitals
provided no evidence that a present controversy exists. But a central claim of the hospitals’
complaint was that they don’t know exactly what event triggers their duties under the
statute. Presumably, under the Act, the hospitals’ duties attach once an investigation begins.
But the hospitals assert that the statute’s definition of investigation is so broad, and covers
such ordinary and routine procedures, 3 that the definition is unconstitutionally vague. In
3
“All hospitals have quality-assurance policies in place. Under such policies, hospital
personnel review files and records following a complaint or medical accident, even if no
wrongdoing has occurred on the part of a physician. . . . As codified, the Act can be read to
treat such quality-assurance procedures and informal talks as “investigations,” thus triggering
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other words, a controversy exists about when a controversy arises. The hospitals sufficiently
pled this in their complaint, and they had no obligation to present additional evidence to
establish a justiciable controversy on this question of law.
Finally, the fact that the hospitals sued the State rather than an individual physician
should not prevent this lawsuit from going forward for lack of an adverse party. The adverse-
party requirement ensures that both sides of an argument are presented to the court. See,
e.g., Mastin v. Mastin, 316 Ark. 327, 330, 871 S.W.2d 585, 587 (1994) (finding no justiciable
controversy “in a one-brief case where the matter has not been fully argued or even
contested”); UHS of Ark., Inc. v. City of Sherwood, 296 Ark. 97, 101, 752 S.W.2d 36, 38
(1988) (finding no justiciable controversy when the State, in its answer, admitted that the
plaintiff was entitled to relief); see also Baker v. Carr, 369 U.S. 186, 204 (1962) (explaining
that “the gist of the question of standing” is whether a plaintiff has “alleged such a personal
stake in the outcome of the controversy as to assure that concrete adverseness which sharpens
the presentation of issues upon which the court so largely depends for illumination of
difficult constitutional questions”). The State, via the attorney general, has robustly defended
this Act both below and on appeal. We have the benefit of two well-briefed, adverse
arguments as well as amicus curiae briefs. We should answer the squarely presented
questions.
Mitchell, Williams, Selig, Gates & Woodyard, P.L.L.C., by: Megan D. Hargraves, for
appellants.
Leslie Rutledge, Att’y Gen., by: Bourgon B. Reynolds, Ass’t Att’y Gen., for appellees.
specific notification and disclosure requirements.” Brief for Arkansas Hospital Association as
Amicus Curiae 8.
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Mitchell, Blackstock, Ivers, Sneddon & Marshall, PLLC, by: Emily Sneddon and Michael
W. Mitchell, amicus curiae in support of appellees.
Elisa White, Vice President and General Counsel, Arkansas Hospital Association,
amicus curiae in support of appellants.
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