Northlake Nursing and Rehabilitation Center, L.L.C. d/b/a Northlake Nursing and Rehabilitation Center v. State of Indiana Department of Health

Jun 10 2015, 10:05 am
ATTORNEYS FOR APPELLANT ATTORNEYS FOR APPELLEE
Randall R. Fearnow Gregory F. Zoeller
Quarles & Brady, LLP Attorney General of Indiana
Chicago, Illinois 60654
Frances Barrow
Lucy R. Dollens Deputy Attorney General
Larissa E. Koshatka Indianapolis, Indiana
Quarles & Brady, LLP
Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Northlake Nursing and June 10, 2015
Rehabilitation Center, L.L.C. Court of Appeals Cause No.
d/b/a Northlake Nursing and 49A02-1411-PL-813
Rehabilitation Center, Appeal from the Marion Superior
Court
Appellant-Petitioner, Cause No. 49D13-1110-PL-41539
v. The Honorable Timothy Oakes,
Judge
State of Indiana Department of
Health,
Appellee-Respondent.
Barnes, Judge.
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Case Summary
[1] Northlake Nursing and Rehabilitation Center, L.L.C., (“Northlake”) appeals
the trial court’s denial of its petition for judicial review of a decision by the
Indiana State Department of Health (“ISDH”). We affirm.
Issue
[2] Northlake raises one issue, which we restate as whether the trial court properly
denied its petition for judicial review.
Facts
[3] Northlake operated a nursing facility in Merrillville, and the ISDH licenses such
facilities. In January 2009, the ISDH conducted a recertification and licensure
survey of Northlake’s facility and found that it was “not in compliance with
health facility regulations.” Appellant’s App. p. 79. The ISDH filed an
administrative complaint against Northlake, and Northlake agreed to enter into
a Consent Decree to resolve the complaint. Under the May 2009 Consent
Decree, the ISDH agreed to issue a three-month probationary license to
Northlake. At the end of the probationary period, the ISDH agreed to
reevaluate conditions at the facility. If it found that Northlake was “in
substantial compliance with 410 I.A.C. 162,” the ISDH agreed to issue a full
license to Northlake upon Northlake’s submission of an application and license
fee. If Northlake was not in substantial compliance, the ISDH could extend the
probationary license. Under Indiana Code Section 16-28-3-4, the ISDH can
issue no more than three probationary licenses in a twelve-month period.
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[4] Northlake’s first probationary license was in effect from May 1, 2009, through
July 31, 2009. At the end of the probationary license, the ISDH found that
Northlake was not in substantial compliance and issued a second probationary
license effective from August 1, 2009, to October 31, 2009. The ISDH again
found that Northlake was not in substantial compliance during its second
probationary period and issued a third probationary license effective from
November 1, 2009, to January 31, 2010. The ISDH again found that Northlake
was not in substantial compliance during the third probationary period and
denied issuance of a full license to Northlake.
[5] On February 1, 2010, the ISDH issued an Emergency Order for Relocation of
Residents of Northlake. Northlake initiated an administrative appeal of this
order on February 2, 2010, under ISDH Cause No. AEO-146-10. On February
3, 2010, ISDH issued a Notice of Non-Renewal of License. Northlake initiated
an administrative appeal of that order on February 9, 2010, under ISDH Cause
No. C-814-10. On February 22, 2010, Northlake was notified by the federal
agency that oversees the Medicare and Medicaid programs in Indiana that its
Medicaid provider agreement was being terminated effective March 15, 2010.
[6] Northlake sought a stay of the Emergency Order for Relocation and argued that
it was in substantial compliance when it filed its license application after the
second probationary period and that the ISDH was required to issue a full
license pursuant to the Consent Decree. After a hearing, the administrative
law judge (“ALJ”) entered findings of fact and conclusions of law denying
Northlake’s stay request and affirming the issuance of the Emergency Order for
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Relocation on March 8, 2010. The ALJ found that Northlake “was not in
substantial compliance for a large or substantial portion of the second or third
probationary period” and that the “preponderance of the evidence shows that
the Emergency Order was valid.” Appellant’s App. p. 70.
[7] Northlake sought emergency relief by filing a petition for judicial review in the
Marion Superior Court No. 11 on March 8, 2010 (“First Petition”). The First
Petition concerned both the Emergency Order for Relocation and the Notice of
Non-Renewal of License. It sought a stay of both orders before March 15, 2010
and argued that the orders were arbitrary and capricious. According to
Northlake, exhaustion of its administrative remedies would be futile because its
Medicaid certification would be terminated before those remedies concluded,
and it would suffer irreparable harm because all of the residents would have
already moved to other nursing facilities. On March 16, 2010, the trial court
granted a stay of the Emergency Order for Relocation and the Notice of Non-
Renewal of License until a final determination was made in the judicial review
action.1
[8] Northlake’s facility closed on May 7, 2010. On June 30, 2010, Northlake’s
counsel withdrew from the judicial review action. On August 20, 2010, the trial
1
Although the federal agency that governed Medicaid issued a notice on March 31, 2010, that lifted the
mandatory termination and set a discretionary termination date of April 20, 2010, another survey found that
Northlake was again not in substantial compliance. The agency then terminated Northlake’s Medicaid
eligibility. Northlake appealed the termination, but a federal ALJ found that the decision was proper and a
federal Appeals Board affirmed the ALJ’s decision. Northlake sought judicial review in federal court, but the
district court denied the petition in August 2014.
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court dismissed Northlake’s petition for judicial review with prejudice because
Northlake failed to appear at a Trial Rule 41(E) hearing.2
[9] In October 2010, the ISDH issued a final order that affirmed the ALJ’s March
2010 order regarding the Emergency Order for Relocation. Northlake then
filed a second petition for judicial review in Marion Superior Court No. 5
(“Second Petition”). In November 2013, the trial court granted Northlake’s
Second Petition. The trial court concluded that the action was not barred by res
judicata, that the action was not moot, and that “ISDH’s failure to issue
Northlake a full license to operate its health care facility was a breach of the
parties’ Consent Decree and was arbitrary, capricious, and contrary to law.”
Appellant’s App. p. 117. The ISDH did not appeal the trial court’s decision.
[10] While the trial court was considering the Second Petition, the administrative
appeal of the Notice of Non-Renewal of License also proceeded. On February
25, 2011, the ISDH filed a motion to dismiss Northlake’s administrative appeal.
The ISDH argued that the administrative appeal was moot because: (1)
2
Indiana Trial Rule 41(E) provides:
Whenever there has been a failure to comply with these rules or when no action has been
taken in a civil case for a period of sixty [60] days, the court, on motion of a party or on
its own motion shall order a hearing for the purpose of dismissing such case. The court
shall enter an order of dismissal at plaintiff’s costs if the plaintiff shall not show sufficient
cause at or before such hearing. Dismissal may be withheld or reinstatement of dismissal
may be made subject to the condition that the plaintiff comply with these rules and
diligently prosecute the action and upon such terms that the court in its discretion
determines to be necessary to assure such diligent prosecution.
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Northlake had relocated its residents and closed prior to its license being
terminated; and (2) ISDH did not have the authority to grant a full license to
Northlake because Northlake did not have at least four residents. The ISDH
also argued that Northlake’s petition for administrative review was untimely.
On May 13, 2011, the ALJ found that Northlake’s petition was timely but that
it was moot. The ALJ noted that Northlake had initiated judicial review of the
Notice of Non-Renewal of License in the First Petition but had “elected not to
pursue or further contest the Non-Renewal of License.” Appellant’s App. p.
43. The ALJ also determined that Northlake was ineligible to receive a full
license because it did not have at least four residents. Consequently, the ALJ
dismissed Northlake’s administrative appeal, and a final order was issued on
September 26, 2011.
[11] Northlake then filed another petition for judicial review regarding the Notice of
Non-Renewal of License in Marion Superior Court No. 13 (“Third Petition”).
The trial court ultimately entered findings of fact and conclusions of law
denying Northlake’s Third Petition and affirming the agency action. The trial
court concluded:
Respondent’s decision that this case is moot is in conformity with the
law. Northlake brought a judicial review on the underlying issue of
the notice of nonrenewal of its license, sought and gained relief in the
form of a stay of agency action from the court, but closed its facility
and abandoned the judicial review. Now, because there is no facility
that ISDH may license due to Northlake’s closure of its facility, this
Court cannot provide relief to Northlake. Similarly, Northlake already
brought a claim seeking review of the same underlying issue in a
previous judicial review, failed to prosecute the case, and that judicial
review was dismissed with prejudice. Thus, litigation of this case is
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barred by the principle of res judicata. For these reasons, Northlake’s
judicial review must be denied and ISDH’s decision is affirmed.
Appellant’s App. p. 18.
[12] Northlake filed a motion to correct error, arguing that the trial court’s order
conflicted with Marion Superior Court No. 5’s November 2013 order in the
Second Petition. The ISDH argued that the Second Petition concerned only the
Emergency Order for Relocation and was not relevant to the judicial review of
the Notice of Non-Renewal of License in the Third Petition. The trial court
denied Northlake’s motion to correct error. Northlake now appeals.
Analysis
[13] Northlake challenges the trial court’s denial of its Third Petition regarding the
Notice of Non-Renewal of License. “The burden of demonstrating the
invalidity of agency action is on the party to the judicial review proceeding
asserting invalidity.” Ind. Code § 4-21.5-5-14(a). Our review is limited to
determining whether the agency possessed jurisdiction over the subject matter,
and whether the agency’s decision was made upon substantial evidence, was
not arbitrary or capricious, and was not in violation of any constitutional,
statutory or legal principles. Bryant v. Indiana State Dep’t of Health, 695 N.E.2d
975, 978 (Ind. Ct. App. 1998) (citing Ind. Code § 4-21.5-5-14). The trial court
proceeding is not intended to be a trial de novo, but rather the trial court simply
analyzes the record as a whole to determine whether the administrative findings
are supported by substantial evidence. Id. Courts that review administrative
determinations, at both the trial and appellate level, are prohibited from
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reweighing the evidence and judging the credibility of witnesses and must
accept the facts as found by the administrative body. Id. Although a reviewing
court owes some deference to an administrative agency’s findings of fact, no
such deference need be accorded an agency determination of a matter of law.
Id.
[14] On appeal, Northlake argues that the trial court erred by denying its petition for
judicial review. Specifically, Northlake argues that its petition was not moot.
However, the trial court also found that Northlake’s petition should be denied
because it was barred by res judicata, and Northlake does not address this
finding by the trial court. We agree with the trial court’s finding regarding res
judicata.
[15] The doctrine of res judicata operates to preclude the litigation of matters that
have already been litigated. Dev. Servs. Alternatives, Inc. v. Indiana Family & Soc.
Servs. Admin., 915 N.E.2d 169, 179 (Ind. Ct. App. 2009), trans. denied. The
principle of res judicata is divided into two branches: claim preclusion and issue
preclusion. “Claim preclusion applies where a final judgment on the merits has
been rendered which acts as a complete bar to a subsequent action on the same
issue or claim between those parties and their privies.” Id. “Issue preclusion,
also referred to as collateral estoppel, bars the subsequent relitigation of the
same fact or issue where the fact or issue was necessarily adjudicated in a
former suit and the same fact or issue is presented in a subsequent action.” Id.
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[16] Claim preclusion is at issue here. When a party argues that the claim
preclusion component of res judicata applies, four factors must be present,
namely:
(1) the former judgment must have been rendered by a court of
competent jurisdiction; (2) the former judgment must have been
rendered on the merits; (3) the matter now in issue was, or could have
been, determined in the prior action; and (4) the controversy
adjudicated in the former action must have been between parties to the
present suit or their privies.
Id. (quoting Indpls. Downs, LLC v. Herr, 834 N.E.2d 699, 703 (Ind. Ct. App.
2005), trans. denied).
[17] Here, Northlake sought emergency relief of the Emergency Order for
Relocation and the Notice of Non-Renewal of License by filing the First
Petition in March 2010. Northlake’s First Petition sought a stay of both orders,
and Northlake argued that exhaustion of its administrative remedies would be
futile. Northlake requested a finding that the ISDH’s Emergency Order for
Relocation and the Notice of Non-Renewal of License were arbitrary and
capricious. On March 16, 2010, the trial court granted a stay of the Emergency
Order for Relocation and the Notice of Non-Renewal of License until a final
determination was made in the judicial review. However, on June 30, 2010,
Northlake’s counsel withdrew from the judicial review action. On August 20,
2010, the trial court dismissed Northlake’s petition for judicial review with
prejudice because Northlake failed to appear at a Trial Rule 41(E) hearing. The
administrative appeal of the Notice of Non-Renewal of License later continued,
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but the ALJ dismissed it, and the trial court, in the Third Petition, found in part
that the action was barred by res judicata.
[18] The first factor in determining whether res judicata applies is whether the
former judgment was rendered by a court of competent jurisdiction. In its reply
brief, Northlake argues that the trial court in the First Petition lacked subject
matter jurisdiction because Northlake had not exhausted its administrative
remedies. Our supreme court has held that “the exhaustion of administrative
remedies under [the Administrative Orders and Procedures Act] is a procedural
error and does not implicate the trial court’s subject matter jurisdiction.” First
Am. Title Ins. Co. v. Robertson, 19 N.E.3d 757, 760 (Ind. 2014), amended on reh’g,
27 N.E.3d 768 (Ind. 2015). Moreover, Northlake argued in the First Petition
that it was not required to exhaust its administrative remedies because it would
suffer irreparable harm while the administrative appeal was finalized. See, e.g.,
State Bd. of Tax Comm’rs v. Ispat Inland, Inc., 784 N.E.2d 477, 483 (Ind. 2003)
(holding that a party may gain judicial review without exhausting its
administrative remedies “where pursuit of administrative remedies would be
futile, where strict compliance would cause irreparable harm, and where the
applicable statute is alleged to be void on its face”). Northlake cannot now
argue that the trial court in the First Petition lacked the ability to hear the case.
The judgment was rendered by a court of competent jurisdiction.
[19] The next factor is whether the former judgment was rendered on the merits.
The trial court dismissed the First Petition with prejudice under Indiana Trial
Rule 41(E). “Unless the court in its order for dismissal otherwise specifies, a
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dismissal under Trial Rule 41(E) operates as an adjudication upon the merits.”
Indiana Dep’t of Natural Res. v. Ritz, 945 N.E.2d 209, 213 (Ind. Ct. App. 2011)
(citing Ind. Trial Rule 41(B)), trans. denied. We have held that “a dismissal with
prejudice constitutes a dismissal on the merits and is therefore conclusive of the
rights of the parties and res judicata as to the questions that might have been
litigated.” Baker & Daniels, LLP v. Coachmen Indus., Inc., 924 N.E.2d 130, 135
n.5 (Ind. Ct. App. 2010), trans. denied; see also Ilagan v. McAbee, 634 N.E.2d 827,
829 (Ind. Ct. App. 1994). Consequently, the dismissal with prejudice was a
judgment rendered on the merits.
[20] The next factor is whether the matter now in issue was, or could have been,
determined in the prior action. In the First Petition, Northlake asked the trial
court to enter a stay of the Emergency Order for Relocation and the Notice of
Non-Renewal of License and to find that the orders were arbitrary and
capricious. The trial court granted the stay, but Northlake abandoned
continued judicial review. The trial court could have determined whether the
Notice of Non-Renewal of License was arbitrary and capricious, which is the
same issue presented in the Third Petition.
[21] The final factor is whether the controversy adjudicated in the former action was
between parties to the present suit or their privies. Northlake and the ISDH are
parties to both the First Petition and the Third Petition.
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[22] All of the factors are present, and we conclude that the trial court properly
found that res judicata barred Northlake’s Third Petition.3 Because the trial
court properly denied Northlake’s Third Petition based on res judicata, we need
not address Northlake’s mootness arguments. See, e.g., Angelopoulos v.
Angelopoulos, 2 N.E.3d 688, 698 (Ind. Ct. App. 2013) (affirming the trial court’s
dismissal of the plaintiff’s claims based on res judicata), trans. denied.
Conclusion
[23] The trial court properly denied Northlake’s Third Petition based on res judicata.
We affirm.
[24] Affirmed.
Riley, J., and Bailey, J., concur.
3
In the context of its mootness argument, Northlake briefly argues that the res judicata holding conflicts with
the holding in the Second Petition. We acknowledge that, “[u]nder traditional res judicata doctrine, where
there are conflicting judgments and each would be entitled to preclusive effect if it stood alone, the last in
time controls in subsequent litigation.” Ruth B. Ginsburg, Judgments in Search of Full Faith and Credit: The
Last-in-Time Rule for Conflicting Judgments, 82 Harv. L. Rev. 798 (1969). However, Northlake makes no
cogent analysis that the Second Petition, which concerned the Emergency Order for Relocation, is entitled to
preclusive effect. Consequently, we decline to address res judicata in the context of the Second Petition.
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