Appeal by New Hanover Health Care Center, L.L.C., Lutheran
Retirement Center-Wilmington, Inc., and Living Centers-Southeast,
Inc., from a final agency decision entered 24 March 1999 by Lynda
D. McDaniel, Director of Division of Facility Services for the
North Carolina Department of Health and Human Services. Heard in
the Court of Appeals 27 March 2000.
Womble Carlyle Sandridge & Rice, P.L.L.C., by Mary Beth
Johnston, for petitioner-appellant Living Centers-Southeast,
Inc.
Smith Helms Mulliss & Moore, L.L.P., by Maureen Demarest
Murray, for petitioner-appellant Lutheran Retirement Center-
Wilmington Incorporated.
Parker, Poe, Adams & Bernstein, L.L.P., by Renée J.
Montgomery, for petitioner-appellant New Hanover Health Care
Center, L.L.C.
Attorney General Michael F. Easley, by Assistant Attorney
General Staci Tolliver Meyer and Special Deputy AttorneyGeneral James A. Wellons, for respondent-appellee N.C.
Department of Health and Human Services.
Poyner & Spruill, L.L.P., by William R. Shenton, for
respondent-intervenor-appellee Devin Partnership and Devin
Health Care Associates, L.L.C.
HUNTER, Judge.
Petitioners Living Centers-Southeast, Inc. (“LC-SE”), Lutheran
Retirement Center-Wilmington, Inc. (“Lutheran”), and New Hanover
Health Care Center, L.L.C. (“NHHC”), appeal a final agency decision
wherein the North Carolina Department of Health and Human Services,
Division of Facility Services, Certificate of Need Section
(“Department”), by summary judgment, denied each of their
applications for a certificate of need and awarded it to Devin
Partnership and Devin Health Care Associates, LLC (“Devin”). The
certificate of need in question is for the construction of a
nursing facility in New Hanover County. Each petitioner alleges
that it is the only applicant to meet all of the statutory
certificate of need requirements under N.C. Gen. Stat. § 131E-183,
thus it should be granted the certificate of need. We remand for
a full contested case hearing, which is required in a certificate
of need contested case pursuant to N.C. Gen. Stat. § 131E-175, etseq., (“CON Statute”).
CERTIFICATE OF NEED LAW IN NORTH CAROLINA
First, we shall briefly review the history, purpose, and
procedure involved in obtaining a certificate of need in North
Carolina. “[A]fter Congress passed the National Health Planning
and Resource Development Act of 1974 requiring a state certificateof need program as a prerequisite to obtaining federal health
program financial grants, our General Assembly enacted [the CON
Statute] in 1977.”
Hospital Group of Western N.C. v. N.C. Dept. of
Human Resources, 76 N.C. App. 265, 267, 332 S.E.2d 748, 750 (1985).
The fundamental purpose of the certificate of need law is to limit
the construction of health care facilities in North Carolina to
those that are needed by the public and that can be operated
efficiently and economically for its benefit.
In re Humana Hosp.
Corp. v. N.C. Dept. of Human Resources, 81 N.C. App. 628, 345
S.E.2d 235 (1986);
see N.C. Gen. Stat. § 131E-175 (1999).
Under the CON Statute, certificate of need applications are
reviewed by the Department after the need for a health care service
has been identified. Applications which are received by the
Department are normally reviewed for ninety days after the deadline
established by the Department. N.C. Gen. Stat. § 131E-185(a)
(1999). The Department's initial review consists of a two stage
process, which
is consistent with the language, purpose and
overall scheme of the [CON statute].
First, after the [Department] “batches”
all applications for competing proposals, the
[Department] must review each application
independently against the [N.C. Gen. Stat. §
131E-183] criteria (without considering the
competing applications) and determine whether
it “is either consistent with or not in
conflict with these criteria.” G.S. § 131E-
183(a). . . .
Second, after each application is
reviewed on its own merits, the [Department]
must decide which of the competing
applications should be approved. This
decision may include not only whether and towhat extent the applications meet the
statutory and regulatory criteria, but it may
also include other “findings and conclusions
upon which it based its decision.” G.S. §
131E-186(b). Those additional findings and
conclusions give the [Department] the
opportunity to explain why it finds one
applicant preferable to another on a
comparative basis. . . .
Britthaven, Inc. v. N.C. Dept. of Human Resources, 118 N.C. App.
379, 385, 455 S.E.2d 455, 460-61,
disc. review denied, 341 N.C.
418, 461 S.E.2d 754 (1995). The statutory criteria to be reviewed
in the first stage include, among other things, documentation of
the needs of the subject population, the applicant's financial and
operational projections, the availability of necessary resources,
and demonstration that the cost, design, and means of the proposed
construction represent the most reasonable alternative. N.C. Gen.
Stat. § 131E-183(3), (5), (7), (12) (1999). When the review period
ends as provided in N.C. Gen. Stat. § 131E-185, the Department must
“issue a decision to 'approve,' 'approve with conditions,' or
'deny,' an application for a new institutional health service.”
N.C. Gen. Stat. § 131E-186(a) (1999). The Department's decision to
approve, approve with conditions, or deny an application for a
certificate of need is based upon its determination of whether the
applicant has complied with the statutory criteria contained in
N.C. Gen. Stat. § 131E-183(a) and rules adopted by the agency
contained in 10 North Carolina Administrative Code § 3 R.1100,
et
seq. (1991).
Britthaven, 118 N.C. App. at 382, 455 S.E.2d at 459.
After the initial decision has been made, the Department issues a
certificate of need within thirty-five days, provided that norequest for a contested case hearing has been filed and “all
applicable conditions of approval that can be satisfied before
issuance of the certificate of need have been met.” N.C. Gen.
Stat. § 131E-187(a) (1999).
The CON Statute provides that a person affected by the award
of a certificate of need may file a petition under the
Administrative Procedure Act (“APA”), entitling him to a contested
case hearing in the Office of Administrative Hearings (“OAH”).
N.C. Gen. Stat. § 131E-188(a) (1999). Once this request has been
made, the initial Department award of the certificate of need in
question must undergo review in the OAH by an administrative law
judge (“ALJ”). N.C. Gen. Stat. § 131E-188(a)(1). Once the
contested case petition is filed, an ALJ is assigned within fifteen
days, and the parties are required to complete discovery within
ninety days after the assignment of the ALJ. N.C. Gen. Stat. §
131E-188(a)(2). Within forty-five days after the end of the
discovery period, a “hearing at which sworn testimony is taken and
evidence is presented shall be held,” and the ALJ must make a non-
binding recommended decision within seventy-five days after the
hearing. N.C. Gen. Stat. § 131E-188(a)(3), (4). After the
recommended decision has been issued, the ALJ compiles an official
record in the case, which contains:
(1) Notices, pleadings, motions, and
intermediate rulings;
(2) Questions and offers of proof,
objections, and rulings thereon;
(3) Evidence presented;
(4) Matters officially noticed, except
matters so obvious that a statement of
them would serve no useful purpose; and
(5) Repealed . . . .
(6) The administrative law judge's
recommended decision or order.
N.C. Gen. Stat. § 150B-37(a)(1) - (6) (1999). Once the Department
receives the official record, it is required to a make a final
decision in the case within thirty days. N.C. Gen. Stat. § 131E-
188(a)(5). “The Department shall issue a certificate of need
within five days after . . . the final agency decision has been
made following a contested case hearing, and all applicable
conditions of approval that can be satisfied before issuance of the
certificate of need have been met.” N.C. Gen. Stat. § 131E-187(b).
FACTS
The facts relevant to the present appeal indicate that in
1997, the State Medical Facilities Plan identified the need for 110
additional nursing facility beds for New Hanover County. Devin,
LC-SE, Lutheran, and NHHC, along with several other applicants,
filed applications with the Agency for a certificate of need
pursuant to this plan.
In its initial decision dated 28 January 1998, the Department
found that LC-SE conformed to all certificate of need criteria
under N.C. Gen. Stat. § 131E-183, but that Devin, Lutheran, and
NHHC did not conform to all criteria. Nevertheless, the Department
determined that Devin's application was comparatively superior to
all others and granted Devin the certificate of need subject to
thirteen conditions. After this initial decision had been entered,LC-SE, Lutheran and NHHC filed petitions for a contested case
hearing. These cases were consolidated for hearing and each party
was granted permission to intervene in the other parties' contested
case.
NHHC filed a motion for summary judgment against Devin,
arguing that Devin failed to demonstrate conformity with N.C. Gen.
Stat. § 131E-183(a)(5) (“Criterion 5”), as a matter of law.
Criterion 5 provides that an applicant must provide financial and
operational projections for the project which “demonstrate the
availability of funds for capital and operating needs as well as
the immediate and long-term financial feasibility of the proposal.”
N.C. Gen. Stat. § 131E-183(a)(5) (1999). The ALJ heard the motions
regarding Devin's application on 2 June 1998. She granted NHHC's
motion and entered an “interlocutory” recommended decision that
Devin's application be denied on summary judgment, finding that
Devin did not conform with Criterion 5, and that no genuine issues
of material fact existed. In her conclusions of law, the ALJ
stated:
8. The CON Section is authorized
pursuant to N.C.G.S. § 131E-186(a) to approve
a CON application with conditions; however, in
a competitive review, it is arbitrary and
capricious for the Agency to use conditions to
obtain statutorily required information to
complete a nonconforming application. To do
so places the conditionally-approved
nonconforming applicant at an unfair advantage
over the unapproved nonconforming applicants.
N.C.G.S. § 131E-183(a) requires that the
Agency determine that “. . . an application is
either consistent with or not in conflict with
these [statutory] criteria before a
certificate of need for the proposed project
shall be issued.” (Emphasis added.) . . . .
In her final conclusion of law concerning Devin's application, the
ALJ stated: “Because this recommended decision addressed one issue
in this contested case, the undersigned concluded that it was
interlocutory in nature and therefore, not subject to review for
final agency decision at that time.”
Summary judgment motions on the other applications were heard
on 18 September 1998, and the ALJ entered a “final” recommended
decision on 24 November 1998 where she restated the interlocutory
decision regarding Devin's application, and awarded summary
judgment against LC-SE, Lutheran, and NHHC, contending that none of
them complied with all of the criteria in N.C. Gen. Stat. § 131E-
183, and thus should not be awarded the certificate of need. The
ALJ did not review the Department's initial comparative analysis of
the applications and award. Apparently, because the ALJ determined
that no applicant satisfied the statutory criteria based on summary
judgment motions, a comparative analysis and award was not
necessary in her recommended decision.
On 24 March 1999, Lynda D. McDaniel, the Director of Facility
Services for the Department, entered a final agency decision as
required under the APA, wherein the ALJ's recommended decision was
rejected. The final agency decision denied the motion for summary
judgment against Devin's application, which had been recommended by
the ALJ. It stated that Devin had properly been granted the
certificate of need subject to certain conditions in the initial
decision and that Devin was comparatively superior to all other
applicants in the initial comparative review. The final agencydecision determined that LC-SE conformed to all criteria under N.C.
Gen. Stat. § 131E-183, and rejected the recommended summary
judgment against LC-SE, as it concluded that there was an issue of
fact as to whether LC-SE had amended its application based on
restructuring of LC-SE's parent corporation, and an amendment is
prohibited under Presbyterian-Orthopaedic Hosp. v. N.C. Dept. of
Human Resources, 122 N.C. App. 529, 537, 420 S.E.2d 831, 836,
(1996), review improv. allowed, 346 N.C. 267, 485 S.E.2d 294
(1997). The final agency decision stated that summary judgment
against Lutheran's and NHHC's applications was proper because, as
a matter of law, they did not conform to all statutory criteria.
Thus, the final agency decision awarded the certificate of need to
Devin. Petitioners appeal the final agency decision.
STANDARD OF REVIEW
Trial and appellate court review of administrative agency
decisions are governed by the APA, N.C. Gen. Stat. § 150B-1 et seq.
See Eury v. N.C. Employment Security Comm., 115 N.C. App. 590, 596,
446 S.E.2d 383, 387, disc. review denied, 338 N.C. 309, 451 S.E.2d
635 (1994). This Court must first make two determinations when
reviewing a final decision in a contested case in which an ALJ made
a recommended decision:
First, the court shall determine whether
the agency heard new evidence after receiving
the recommended decision. If the court
determines that the agency heard new evidence,
the court shall reverse the decision or remand
the case to the agency to enter a decision in
accordance with the evidence in the official
record. Second, if the agency did not adopt
the recommended decision, the court shall
determine whether the agency's decision statesthe specific reasons why the agency did not
adopt the recommended decision. If the court
determines that the agency did not state
specific reasons why it did not adopt a
recommended decision, the court shall reverse
the decision or remand the case to the agency
to enter specific reasons. N.C. Gen. Stat. §
150B-51(a) (1999).
Dialysis Care of N.C. v. N.C. Dept. of Health and Human Services,
137 N.C. App. 638, 344-45, ___ S.E.2d ___, ___ (2000). If the case
passes our review under this statute, thereafter our standard of
review is governed by N.C. Gen. Stat. § 150B-51(b). This statute
provides, in pertinent part, that we may (1) affirm the agency's
decision; (2) remand the case for further proceedings; or, (3)
modify or reverse the decision of the Department if the
petitioners' substantial rights may have been prejudiced because
the Department's findings, inferences, conclusions, or decisions
are:
(1) In violation of constitutional
provisions;
(2) In excess of the statutory authority or
jurisdiction of the agency;
(3) Made upon unlawful procedure;
(4) Affected by other error of law;
(5) Unsupported by substantial evidence
admissible under G.S. 150B-29(a),
150B-30, or 150B-31 in view of the
entire record as submitted; or
(6) Arbitrary or capricious.
N.C. Gen. Stat. § 150B-51(b)(1) - (6) (1999).
Application
First, we note that our review under N.C. Gen. Stat. § 150B-
51(a) indicates that the Department did not hear new evidence after
receiving the recommended decision from the ALJ, and that its
decision states the specific reasons why the agency did not adopt
the recommended decision. Therefore, we are governed by N.C. Gen.
Stat. § 150B-51(b). We have considered this issue, and based on
our review and pursuant to N.C. Gen. Stat. § 150B-51(b), we choose
to remand the case at bar for further proceedings in the form of a
full adjudicatory hearing in the OAH.
Our General Assembly has chosen to give a losing applicant in
an initial decision for a certificate of need the opportunity to
have the decision reviewed in a contested case hearing before an
ALJ. See N.C. Gen. Stat. § 131E-188(a). The CON Statute provides,
in pertinent part: “The hearing at which sworn testimony is taken
and evidence is presented shall be held within 45 days after the
end of the discovery period.” N.C. Gen. Stat. § 131E-188(a)(3)
(emphasis added). “[O]rdinarily, the word “must” and the word
“shall,” in a statute, are deemed to indicate a legislative intent
to make the provision of the statute mandatory . . . . State v.
House, 295 N.C. 189, 203, 244 S.E.2d 654, 662 (1978). “'In seeking
to discover and give effect to the legislative intent, an act must
be considered as a whole, and none of its provisions shall be
deemed useless or redundant if they can reasonably be considered as
adding something to the act which is in harmony with its purpose.'”
In re Easement in Fairfield Park, 90 N.C. App. 303, 309, 368 S.E.2d
639, 642 (1988) (quoting State v. Harvey, 281 N.C. 1, 19-20, 187S.E.2d 706, 718 (1972)). Our review of the individual statutes
within the CON Statute, in pari materia, indicates that this
article grants applicants a full contested case hearing at which
they are allowed to present testimony and evidence contained in
their applications.
This process also protects the applicants' due process rights.
The United States Supreme Court has held, in a similar factual
scenario that “where two bona fide applications are mutually
exclusive” in the application process for a construction permit
under the Federal Communications Act, “the grant of one without a
hearing to both deprives the loser of the opportunity which
Congress chose to give him.” Ashbacker Radio Corp. v. Federal Com.
Com., 326 U.S. 327, 333, 90 L. Ed. 108, 113 (1945). Similarly, our
General Assembly chose to give disenfranchised applicants for a
certificate of need an opportunity to be heard in a full
adjudicatory hearing under the CON Statute. N.C. Gen. Stat. §
131E-175, et. seq.
Based on the foregoing authority, a full adjudicatory hearing
is appropriate in a certificate of need contested case involving
two or more applicants. Additionally, we believe that it is
inherent that where two or more certificate of need applicants
conform to the majority of the criteria in N.C. Gen. Stat. § 131E-
183, as in the case at bar, and are reviewed comparatively, there
will always be genuine issues of fact as to who is the superior
applicant. Our reasoning is in accord with the CON Statute, which
does not contemplate the preclusion of a full contested casehearing in a certificate of need case due to a recommended decision
of summary judgment by the ALJ. Additionally, because the
Department can only base its final decision on the official record
developed in the OAH, it is imperative that the record contain all
evidence at this level. We recognize that the evidence presented
to the ALJ is “limited to the evidence that is presented or
available to the [Department] during the [initial] review period.”
Britthaven, 118 N.C. App. at 382, 455 S.E.2d at 459 (citing In re
Application of Wake Kidney Clinic, 85 N.C. App. 639, 355 S.E.2d
788, disc. review denied, 320 N.C. 793, 361 S.E.2d 89 (1987); see
also 2 Am. Jur. 2d, Administrative Law § 299 (1994) (“[U]pon
resumption of formal proceedings all evidence presented in the
informal proceeding becomes part of the record of the formal
proceeding”)). However, this limitation does not preclude a full
adjudicatory hearing as required by the CON Statute.
We note that the ALJ in the present case neither reviewed the
initial agency comparative analysis and award, nor conducted one on
her own. This was error, as “[t]he subject matter of a contested
case hearing by the ALJ is an agency decision.” Britthaven, 118
N.C. App. at 382, 455 S.E.2d at 459. Thus, the ALJ should not have
rendered her recommended decision after only reviewing the
conformity of each applicant with the criteria in N.C. Gen. Stat.
§ 131E-183. To the contrary, she should have reviewed theDepartment's full initial decision, which follows the two-stage
process which we have quoted from Britthaven.
Based on the foregoing, we remand the present case to the
Department, which shall remand to the OAH for a full adjudicatory
hearing in accordance with this opinion. Our ruling is in
accordance with the CON Statute, as it protects the applicants' due
process rights, allows the record to be fully developed, and
encourages judicial economy.
We note that “even though an appeal is fragmentary and
premature, the appellate court may exercise its discretionary power
to express an opinion upon the question which appellant has
attempted to raise.” State ex rel. Comr. of Insurance v. N.C. Rate
Bureau, 102 N.C. App. 809, 812, 403 S.E.2d 597, 599 (1991) (citing
Cowart v. Honeycutt, 257 N.C. 136, 140, 125 S.E.2d 382, 385
(1962)). Many of the assignments of error in the present appeal
concern the issue of whether or not a certificate of need may be
found to conform to the statutory criteria in N.C. Gen. Stat. §
131E-183 based on conditional approval, and most of them
particularly concern Criterion 5. While we do not express an
opinion at this time as to whether any of the applicants in the
case at bar may conform with statutory criteria due to a
conditional approval, we direct the parties to our recent holdings
in Burke Health Investors v. N.C. Dept. of Human Resources, ___
N.C. App. ___, 522 S.E.2d 96 (1999), and Dialysis Care of N.C. v.
N.C. Dept. of Health and Human Services, ___ N.C. App. ___, ___
S.E.2d ___ (No. COA99-436 filed 2 May 2000). Due to our holding, we do not address any of the other issues
presented by petitioners. Accordingly, this case is remanded for
proceedings in accordance with this opinion.
Remanded.
Chief Judge EAGLES and Judge TIMMONS-GOODSON concur.
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