THE STATE OF NEW HAMPSHIRE SUPREME COURT

No. 2010-0548

Chase Home for Children, Child & Family Services, Hannah House, NFI North, Odyssey House, Orion House and Pine Haven Boys Center

v.

State of New Hampshire Department of Health and Human Services, Division for Children, Youth and Families

Appeal from the Merrimack County Superior Court Pursuant to N.H. Supreme Court Rule 7

BRIEF FOR APPELLEES

Lisa Snow Wade (NH Bar #5595) (orally) Rachel Aslin Goldwasser (NH Bar #18315) ORR & RENO, PA

One Eagle Square P.O. Box 3550 Concord, NH 03302-3550 603-224-2381

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TABLE OF CONTENTS

TABLE OF AUTHORITIES .......................................................................................................... iv

QUESTIONS PRESENTED FOR REVIEW ..................................................................................1

TEXT OF PERTINENT CONSTITUTIONAL PROVISIONS, STATUTES, AND RULES ....1

STATEMENT OF THE CASE.........................................................................................................1

STATEMENT OF FACTS................................................................................................................3

I. EACH PROVIDER HAD A CONTRACT WITH DHHS........................................3

A. Medicaid Provider Service Agreements .............................................................3

B. If a Child Fell Outside the Scope of the PSA, the Only Difference Was That the Provider Was Not Obligated to Follow the He-C 6420 Medicaid Rules, and DHHS Paid the Full Per Diem Rate for the Services...................................6

II. THE PSAs RELY ON RATESETTING AS REQUIRED BY THE NEW HAMPSHIRE LEGISLATURE ..................................................................................7

III. LEGISLATIVE HISTORY AND APPROPRIATIONS DO NOT EXCUSE DHHS’S FAILURE TO PAY THE PROVIDERS THEIR STATUTORY RATES ...........................................................................................................................8

A. 2004 & 2005 Appropriations and Legislative History........................................9

B. 2006 Appropriations and Legislative History ...................................................11

SUMMARY OF ARGUMENT .......................................................................................................12

ARGUMENT....................................................................................................................................14

I. STANDARD OF REVIEW.........................................................................................14

II. THE TRIAL COURT PROPERLY FOUND THAT ENFORCEABLE CONTRACTS EXISTED BETWEEN PROVIDERS AND DHHS. ......................15

A. The Trial Court’s Findings Regarding the Existence and Enforceability of

Express Contracts are Lacking in Evidentiary Support or Tainted as a Matter of Law ..................................................................................................................15

B. The Trial Court was Correct in Finding that the Providers Held Implied-in-Fact Contracts with the State for Services Provided to Non-Medicaid Beneficiaries, and that Blue Heron had an Implied-in-Fact Contract with DHHS for the Services It Provided......................................................................21

C. DHHS’ Challenge to the Trial Court’s Interpretation of the Contract Terms

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Must be Disregarded Because It Did Not Preserve This Issue For Appeal .........24

D. The Trial Court Properly Found that the Statute of Limitations Did Not Bar the Contract Claims..............................................................................................24

III. THE TRIAL COURT DID NOT VIOLATE RSA THE SEPARATION OF POWERS CLAUSE OR 9:19 BY REQUIRING DHHS TO FOLLOW ITS OWN CONTRACTS, STATUTES AND RULES, BY ENFORCING THE RATES AWARDED BY DHHS’ OWN ADMINISTRATIVE APPEAL PANEL, AND BY GIVING THE PROVIDERS THE REMEDY THEY DESERVED.................................................................................................................25

A. DHHS’ Own Witnesses Undermine Its Separation of Powers Argument Because They Testified that the Courts Dictate How Many Children Must Be Placed with Providers In Any Given Year ..........................................................26

B. Requiring DHHS to Abide by Its Own Statutes, Rules and Contracts Does Not Offend the Separation of Powers Clause .............................................................27

C. DHHS’ Claimed Lack of Appropriations Does Not Change the Separation of Powers Inquiry.....................................................................................................30

1. The Evidence At Trial Supports the Trial Court’s Finding that Appropriations were Sufficient...................................................................30

2. DHHS Failed to Prove that the Legislature Intended Not to Fund He-C 6422 Rate Setting For SFYs 2004 and 2005...............................................33

D. The Remedy Ordered by the Trial Court is Not Barred by RSA 9:19.................36

IV. THE TRIAL COURT’S DECISION REGARDING COLLATERAL ESTOPPEL WAS CORRECT AND DHHS’ ATTEMPTS TO REVIST DECISIONS MADE BY ADMINISTRATIVE APPEALS PANELS AND UPHELD BY THIS COURT ARE CONTRARY TO NEW HAMPSHIRE LAW. ............................................................................................................................41

V. THE TRIAL COURT WAS JUSTIFIED IN CONCLUDING THAT DHHS

VIOLATED THE COVENANT OF GOOD FAITH AND FAIR DEALING ......42 VI. THE TRIAL COURT WAS CORRECT AS A MATTER OF LAW IN

FINDING THAT THE PROVIDERS MAY ASSERT A STATUTORY VIOLATION CLAIM ................................................................................................43

A. DHHS Waived Any Argument Regarding Sovereign Immunity, But Notwithstanding That Waiver, the Trial Court’s Finding that the Providers Have a Right to Suit Based on the State’s Failure to Pay The Rates Required by He-C 6422 and 2005 HB 1 and 2 is Correct as a Matter of Fact and Law. ....44

B. The Trial Court’s Finding That the Providers Have Standing to Assert A

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Claim for Violation of Statutes and Associated Laws Was Correct As A Matter Of Fact and Law.......................................................................................45

VII. THE TRIAL COURT’S ORDER CAN ALSO BE UPHELD ON THE GROUND THAT DHHS’ ACTIONS CONSTITUTE AN UNCONSTITUTIONAL TAKING...........................................................................46

CONCLUSION ................................................................................................................................49 REQUEST FOR ORAL ARGUMENT..........................................................................................50

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TABLE OF AUTHORITIES

CONSTITUTIONAL PROVISIONS

NH Constitution Pt. I, art. 2.......................................................................................................1, 46

NH Constitution Pt. I, art. 37.....................................................................12, 13, 25, 26, 28, 29, 32

NH Constitution, Pt.I, art. 12.....................................................................................................1, 46

US Constitution, Amend. V ........................................................................................................1, 46

US Constitution, Amend. XIV.....................................................................................................1, 46

CASES

Appeal of Mikell, 145 N.H. 435 (2000) .........................................................................................36

Appeal of Morin, 140 N.H. 515 (1995)....................................................................................29, 30

Appeal of Nolan (NH Personnel App. Bd), 134 N.H. 723 (1991)...........................................23, 30

Appeal of Smithfield Dodge, Inc., 145 N.H. 23 (2000)..................................................................30

Appeal of Toczko, 136 N.H. 480 (1992) ........................................................................................44

B.H. v. Johnson, 715 F. Supp. 1387 (N.D. Ill. 1989).....................................................................48

Baines v. New Hampshire Senate President, 152 N.H. 124 (2005)...............................................29

Blackthorne Group v. Pines of Newmarket, 150 N.H. 804, 806 (2004) ........................................15

Blagborough Family Trust v. A&T Forest Prods., 155 N.H. 29 (2006)...........................14, 31, 40

Bel Air Assoc. v. New Hampshire Dept of Health and Human Servs., 158 N.H. 104 (2008) (Bel Air II) .................................................................................................................................12, 16, 17

Brooks v. Richardson, 478 F. Supp. 793 (S.D.N.Y. 1979) ............................................................48

Centronics Corp. v. Genicom Corp., 132 N.H. 133 (1989)...................................................43 n.17

Chisolm v. Ultima Nashua Indus. Corp., 150 N.H. 141 (2003) ..............................................16, 18

DeShaney v. Winnebago County Social Servs. Dep’t, 489 U.S. 189 (1989) .................................48

Doe v. New York City Dept. of Soc. Servs., 709 F.2d 782 (2d Cir. 1983), cert. denied sub nom., Catholic Home Bureau v. Doe, 464 U.S. 864 (1983) ....................................................................48

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Farm Family Mut. Ins. Co. v. Peck, 143 N.H. 603 (1999) ............................................................42

Fleet Bank-NH v. Christy’s Table, 141 N.H. 285 (1996) ..............................................................17

Glick v. Chocorua Forestlands Ltd Partnership, 157 N.H. 240 (2008) ........................................14

Goodwin Railroad, Inc. v. State of New Hampshire, 128 N.H. 595 (1986) ..................................22

Grossman v. Murray, 141 N.H. 265 (1996)...................................................................................41

Harrison v. Watson, 116 N.H. 510 (1976).....................................................................................22

Hernandez v. Hines, 159 F. Supp. 378 (N.D. Tex. 2001)..............................................................48

In re: Grand Jury Instructions (Docket no. 02-S-1154), 2005 WL 678994 (N.H. Super. Ct. Mar. 22, 2005) (Conboy, J.) ...................................................................................................................18

In re Ryan G., 142 N.H. 643 (1998) ..............................................................................................48

Island Shores Estates Condo. Assoc. v. City of Concord, 136 N.H. 300 (1992) ...........................46

John H. v. Brunelle, 127 N.H. 40 (1985)...........................................................................25, 44, 45

Kilroe v. Troast, 117 N.H. 598 (1977).....................................................................................18, 21

Leary v. City of Manchester, 90 N.H. 256 (1939) .........................................................................42

Livingston v. 18 Mile Point Dr., Ltd., 158 N.H. 619 (2009)..............................................14, 42, 43

Long Term Care Pharmacy Alliance v. Ferguson, 362 F.3d 50 (2004) ................................46 n.18

Lower Village Hydroelectric Assocs. V. City of Claremont, 147 N.H. 73, (2001)........................30

Mahmoud v. Irving Oil Corp., 155 N.H. 405 (2007) ...............................................................24, 44

McKay v. New Hampshire Comp. Appeals Bd., 143 N.H. 722 (1999). .........................................29

Mills v. Nashua Fed. Sav’s and Loan Assoc., 121 N.H. 722 (1981) .............................................18

Morgenroth & Assoc’s, Inc. v. Town of Tilton, 121 N.H. 511 (1981) .....................................22, 23

NH Dept of Environ. Serv. v. Marino, 155 N.H. 709 (2007) ..................................................14, 15

NH Div. of Human Servs. V. Allard, 138 N.H. 604 (1994)............................................................25

NH Health Care Ass’n v. Governor, ___ N.H. ___ (January 21, 2011) ..................................26, 36

Opinion of the Justices, 110 N.H. 359 (1970) ...............................................................................28

Opinion of the Justices (Furlough), 135 N.H. 625 (1992).............................................................30

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Petition of Chase Home for Children, 155 N.H. 528 (2007).............................................1, 2, 3, 25

Petition of New Hampshire Div. for Children, Youth and Families, 155 N.H. 577 (2007) ...............................................................1, 2, 3, 11, 31 n.11, 42 Petition of Strandell, 132 N.H. 110 (1989)....................................................................................35

Ryan James Realty v. Villages at Chester Condo. Assoc., 153 N.H. 194 (2006) .................... 20-21

Sara Realty, LLC v. Country Pond Fish and Game Club, Inc., 158 N.H. 578 (2009) ..................24

Scheele v. Village District of Eidelweiss, 122 N.H. 1015 (1982) ..................................................41

Seaward Constr. Co. v. City of Rochester, 118 N.H. 128 (1978) ..................................................43

State Employees’ Ass’n of New Hampshire v. Belknap County, 122 N.H. 614 (1982) .................25

State Employees’ Ass’n of NH, SEIU Local 1984 v. NH Div. of Personnel, 158 N.H. 338 (2009) ................................................................................................................36, 37 State v. Blackmer, 149 N.H. 47 (2003) .................................................................................... 14-15

State v. Durand, 158 N.H. 146 (2008)...........................................................................................37

State. v. Philip Morris USA, Inc., 155 N.H. 598 (2007) ................................................................29

State v. Robinson, 123 N.H. 665 (1983) ............................................................................46, 47, 48

Syncom Indus., Inc. v. Wood, 155 N.H. 73 (2007).............................................................16, 18, 22

Taylor v. Ledbetter, 818 F.2d 791, 796 (11th Cir. 1987), cert. denied, 489 U.S. 1065 (1989) ......48

Tuttle v. NH Med. Malpractice Underwriting Ass’n, 159 N.H. 627 (2009) ................30, 35, 37, 40

Weldy v. Town of Kingston, 128 N.H. 325 (1986)...................................................................15 n.5

Wilder v. City of New York, 568 F. Supp. 1132 (E.D.N.Y. 1983) .................................................48

Youngberg v. Romeo, 457 U.S. 307 (1982) ...................................................................................48

STATUTES

N.H. RSA 4:15.........................................................................................................................15 n.5

N.H. RSA 9:17-a....................................................................................................................38 n.14

N.H. RSA 9:18.......................................................................................................................40 n.16

N.H. RSA 9:18, II ..................................................................................................................40 n.16

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N.H. RSA 9:19....................................................................................................................... passim

N.H. RSA 9:20.............................................................................................................13, 37, 38, 40

N.H. RSA 9:21...................................................................................................................13, 37, 40

N.H. RSA 169-B..................................................................................................2, 3, 27, 44, 45, 49

N.H. RSA 169-B:40.................................................................................2, 3, 23, 29, 39, 44, 45, 47

N.H. RSA 169-C..................................................................................................2, 3, 27, 44, 45, 49

N.H. RSA 169-C:27.................................................................................2, 3, 23, 29, 39, 44, 45, 47

N.H. RSA 169-D..................................................................................................2, 3, 27, 44, 45, 49

N.H. RSA 169-D:29.......................................................................................2, 3, 23, 29, 39, 45, 47

N.H. RSA 170-G..................................................................................................23, 43, 46, 46 n.18

N.H. RSA 170-G:4...........................................................................................................46 n.18, 49

N.H. RSA 170-G:4, XVII ......................................................................................................2, 7, 45

N.H. RSA 170-G:4, XVII-a ...................................................................................................2, 7, 45

N.H. RSA 170-G:4-a..................................................................................1, 2, 3, 12, 19, 23, 45, 49

N.H. RSA 170-G:4-a, I ....................................................................................................46, 46 n.18

N.H. RSA 170-G:5...............................................................................................................7, 29, 45

N.H. RSA 186-C............................................................................................................................44

N.H. RSA 491:8...........................................................................................................13, 16, 29, 41

N.H. RSA 508:4.............................................................................................................................24

N.H. RSA 508:4, I..........................................................................................................................15

Social Security Act, Title XIX.........................................................................................................4

RULES

N.H. Admin. He-C 6350 ........................................................................................................ passim

N.H. Admin. He-C 6350.13 .............................................................................................................7

N.H. Admin He-C 6350.15(b) ...................................................................................................7, 23

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N.H. Admin He-C 6350.15(c)....................................................................................................7, 23

N.H. Admin He-C 6350.15(d) .............................................................................................7, 19, 23

N.H. Admin. He-C 6420 ....................................................................................................4, 5, 7, 23

N.H. Admin. He-C 6420.08(c)(3)..................................................................................................18

N.H. Admin. He-C 6422 ........................................................................................................ passim

N.H. Admin. He-C 6422.03 .............................................................................................................3

N.H. Admin. He-C 6422.05 .....................................................................................................34, 39

N.H. Admin He-C 6422.15 ..............................................................................................................5

N.H. Admin. He-C 6422.17(e).................................................................................................39, 46

N.H. Admin. He-C 6422.20 .....................................................................................................39, 46

N.H. Admin. He-C 6422.21 .................................................................................................2, 39, 46

N.H. Admin. He-C 6422.22 .............................................................................................................2

N.H. Admin. He-C 6422.24 .............................................................................................................2

N.H. Admin. He-C 6422.25 ...................................................................................................1, 2, 19

Supreme Ct. R. 16(3)(b).......................................................................................................2, 24, 44

42 CFR 434.12 ............................................................................................. 4, 5, 5-6 n.3, 17, 17 n.8

42 CFR Part 434...............................................................................................................................5

OTHER AUTHORITIES

2003 HB 4-FN-A ...........................................................................................................................39

2003 Laws §319:1(HB 4-FN-A)........................................................ 27, 33, 35, 37, 37-38 n.14, 39

2005 Laws §177:4, III (HB 2-FN-A)................................................................... 35, 37, 37-38 n.14

2005 HB 1 .....................................................................................................................................44

2005 HB 2 ......................................................................................................................................44

1 A. Corbin, Contracts §18 (1963).................................................................................................22

Restatement of Contracts §5, comment a (1932)...........................................................................22

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1 S. Williston, A Treatise on the Law of Contracts §3 (1957) ......................................................22

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QUESTIONS PRESENTED FOR REVIEW

1. Did the trial court err in finding that enforceable express or implied contract rights

existed?

2. Did the remedy ordered by the trial court violate the Separation of Powers Clause

and RSA 9:19?

3. Did the trial court err by finding DHHS liable for breaching the covenant of good

faith and fair dealing?

4. Did the trial court err in finding that the Providers had standing to assert a statutory

violation claim?

5. Did the trial court err in ruling that Separation of Powers Clause did not bar the

Providers’ three non-contract claims (i.e., their claims for breach of the covenant of good faith and

fair dealing (Count II), unconstitutional taking under the New Hampshire (pt. I, arts. 2 and 12) and

Federal Constitutions (U.S. Const. Amends. V and XIV) (Count III), and statutory violations (Count

V))?

TEXT OF PERTINENT CONSTITUTIONAL PROVISIONS, STATUTES AND RULES

The text of pertinent provisions of law are included in the Appendix starting at 1.

STATEMENT OF THE CASE

This case arrives in this Court after three administrative rate appeals conducted pursuant to

RSA 170-G:4-a and He-C 6422.25, extensive summary judgment pleadings, an eight-day bench

trial, and two prior appeals to this Court. Order-Motion for Summary Judgment (Oct. 21, 2007

(Fauver, J.) (“S.J. Order” ), DHHS Addendum (“Add.”) at 52; Findings, Rulings, and Decree, (May

4, 2010) (Sullivan, J.) (“Final Decision”), DHHS Add. at 88; Petition of Chase Home for Children,

155 N.H. 528 (2007) (consolidated 2004 and 2005 rate appeals) and Petition of New Hampshire

Div. for Children, Youth and Families, 155 N.H. 577 (2007) (2006 rate appeal).

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The Appellees, Chase Home for Children, Child and Family Services, Hannah House, NFI

North, Odyssey House, Orion House and Pine Haven Boys Center (collectively the “Providers”),

are all private, non-profit residential child care providers located in New Hampshire. During State

Fiscal Years (“SFY”) 2004, 2005 and 2006 they rendered services on behalf of the State to children

ordered into residential placement after being adjudicated as delinquent under RSA 169-B, abused

and neglected under RSA 169-C, and/or in need of services under RSA 169-D. The legislature

placed on DHHS the obligation to pay the Providers “any expense incurred for services,

placements, and programs” provided to the referred children. RSA 169-B:40; 169-C:27: 169-D:29.

It also determined that the amount of the rate would be calculated through annual ratesetting. RSA

170-G:4, XVII and XVII-a. The rate is supposed to cover the Providers’ reasonable cost of

providing the services required by DHHS. He-C 6422.21 and .22.

Because the Providers contested DHHS’ failure to calculate rates as required by law, they

appealed their rates using the administrative appeal process contained in RSA 170-G:4-a and the

rate setting rules. See He-C 6422.24 and .25. All seven appealed 2004 and 2005 rates, while only

Hannah House, NFI North and Pine Haven appealed their 2006 rates.1

Each Provider successfully established at the administrative level that it had a right to higher

rates for each of the years they appealed during 2004 to 2006. DHHS, however, refused to

reimburse the Providers at these awarded rates. The administrative appeal panels’ final decisions

were appealed to this Court on petitions for writ of certiorari. This Court affirmed the rates set by

the administrative panels. See Petition of Chase Home, 155 N.H. at 535 and Petition of DCYF, 155

N.H. at 284. The Court further held that:

It is apparent from the hearing panels' decisions that the petitioners are entitled to retroactive payments at the newly calculated rates. It is also clear from the record that DHHS failed to make such payments as required by Rule 6422 and the statutory

1 This case only involves rates for SFYs 2004-2006. Five of the seven Providers have appealed their rates for 2007-2010. Those administrative matters remain stagnant and are still awaiting the scheduling of the appeal hearings.

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scheme. However, the scope of our review on certiorari is restricted to determining the hearing panels' authority. Thus, we need not decide what further remedies are available to the petitioners, such as whether the petitioners could obtain relief in a civil action in superior court.

Petition of Chase Home, 155 N.H. at 535 (emphasis added). It took the same view with respect to

the 2006 appeal. Petition of DCYF, 155 N.H. at 584-85. The Providers promptly filed a civil action

in superior court seeking a remedy for the underpayment of their rates.

By filing an action in the superior court, the Providers were seeking to require DHHS to

follow the law of this state, to follow DHHS’ own rate setting rules, and to follow the terms of

contracts between the parties which expressly incorporated the rate setting regulations as the

methodology for calculating price. They were also seeking to uphold the integrity of the

administrative appeals process, which DHHS seeks to render meaningless and futile. See RSA 170-

G:4-a. The trial was not about how much the Providers are owed – the parties stipulated to the

amount of the underpayment. Final Decision at 10-11, DHHS Add. at 98-99. Rather, the Providers

asked the trial court to uphold the rule of law and order DHHS to pay them the amount they were

underpaid. The trial court agreed with Providers, and awarded them the stipulated amount of

$3,553,479.55 they were underpaid in SFYs 2004, 2005 and 2006. Id. This appeal followed.

STATEMENT OF FACTS

I. EACH PROVIDER HAD A CONTRACT WITH DHHS

A. Medicaid Provider Service Agreements

The children placed with the Providers during SYFs 2004-2006 were some of New

Hampshire’s most disturbed children; many had a variety of problems from mental illness to severe

abuse, conduct disorders, and all kinds of diagnosable mental conditions. [Tr. 1208:3-15]. By virtue

of being adjudicated under RSA 169-B, -C or -D, all the children were Medicaid-eligible. [Tr.

16:12-20]; He-C 6422.03. Each of the Providers had a written Medicaid Provider Service

Agreement (“PSA”) with DHHS for the provision of services to this population of Medicaid-

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eligible children they were serving during 2004 – 2006.2 App. at 9 (P. Ex. 58).

More specifically, the PSAs all contain a cover page that identifies the parties, and then

provides:

TERM OF THE AGREEMENT This Agreement shall be effective for the period July 1, 2003 to June 30, 2004, inclusive. Thereafter, the Agreement shall be automatically renewed for five (5) successive periods of one year each, commencing on July 1 and ending on June 30, unless terminated as provided in XI of Exhibit A. The per diem capitated rate will be recalculated on a yearly basis and incorporated as a binding amendment to this agreement. At the conclusion of the period of successive renewals, the parties agree to evaluate the operation of this Agreement and negotiate a subsequent agreement concerning payments for services provided by private nonmedical institutions.

PURPOSE AND GENERAL PROVISIONS The purpose of this Agreement shall be to set forth the terms and conditions upon which the above named private nonmedical institution (hereinafter called the “Provider’) shall be, and herein is, designated and selected by the NH Department of Health and Human Services, Division for Children, Youth and Families and Division for Juvenile Justice Services (hereinafter called the “Division”) as a qualified provider of medical services [under Medicaid]. The Provider shall serve New Hampshire residents eligible for medical assistance under Title XIX of the Social Security Act as amended, and shall receive payments on a capitation fee basis within the meaning of 42 CFR 434.12 of the Medicaid regulations and as permitted by the State of New Hampshire Title XIX plan.

Id. at 10 (emphasis added). Thus, the term and general purpose of the Agreement is expressed along

with a general description of the method of payment – per diem capitated rate recalculated annually.

Id. Testimony at trial established that “private nonmedical institution” was the Medicaid category

into which the Providers fit. [Tr.16:4-11]. DHHS and each Provider signed its respective PSA.

E.g., App. at 26 (P. Ex. 58).

Exhibit A of the PSA not only describes the types of service each Provider would render to

the children in their care, but expressly incorporates by reference all of the provisions of He-C

6422, along with He-C 6350 and He-C 6420:

I. Program Type The Provider shall be a private nonmedical institution for children who provides Medicaid covered residential child care facility services (hereinafter called “Residential

2 Plaintiff’s Exhibit 58 provides an example of a PSA. The Providers’ PSAs are identical in material aspects to the example PSA included in the Providers’ Appendix. The PSAs may be found at Plaintiff’s Exhibits 1, 10, 18, 28, 29, 40, 41, 49, and 58.

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Child Care Services”), as defined in He-C 6420, Medicaid Covered Services in Residential Facilities, to youth referred by the Division. The Provider shall comply with the requirements of He-C 6350 Certification for Payment Standards in Residential Programs as appropriate for the type of facility, He-C 6420 Medicaid Covered Services in Residential Facilities, and He-C 6422 New Hampshire Providers Rate-setting Regulations. *** VII. Billing and Rate of Compensation A. Compensation for Medicaid Compensation for Medicaid covered Residential Child Care Services provided under this Agreement shall be a per diem capitated rate and shall be made directly to the Provider as a Medicaid payment by the Medicaid fiscal agent. Board and care, as well as other non-Medicaid services, shall be compensated by a per diem rate computed by the Division and paid to the Provider by the Division, or in part by the appropriate Local New Hampshire Education Authority if applicable…. IX. Rate setting and Reimbursement In accordance with He-C 6422, New Hampshire Child Care Providers Rate Setting Regulation, the per diem rate to be paid to the Provider by the Division shall be a prospective rate based on the proposed budget submitted by the Provider and approved by the Division. The Medicaid rate shall be determined by annual time studies identifying treatment related services.

Id. at 11, 13, 14 (emphasis added). He-C 6422 sets forth the process for rates setting, including

appeals. Notably, Subsection VII.A makes clear that the PSA governs the payment of both

Medicaid and non-Medicaid services rendered to each child in placement. See also He-C 6422.15.

The PSAs clearly spelled out all the essential details of the relationship between DHHS and

the Providers for Medicaid beneficiaries. Despite the position taken by DHHS in this appeal, before

litigation it considered the PSAs contracts. The cover letter forwarding the PSAs to the Providers

from DHHS financial analyst, Tim McAvoy, refers to the attached PSA as “[t]his contract.” App.

at 9 (P. Ex. 58) (emphasis added). Significantly, the PSA also incorporates 42 CFR 434.12. Id. at

10. 42 CFR part 434 is entitled “Contracts,” and subpart 434.12 is entitled “Contracts with private

nonmedical institutions.”3 In contrast with other state service providers, there is no clause in these

3 42 CFR 434.12 provides more specifically: Contracts with private nonmedical institutions. Contracts with private nonmedical institutions must—

(a) Meet the requirements of §434.6;

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PSAs limiting payment to appropriations. [Tr. 787:6-19].

B. If a Child Fell Outside the Scope of the PSA, the Only Difference Was That the Provider Was Not Obligated to Follow the He-C 6420 Medicaid Rules, and DHHS Paid the Full Per Diem Rate for the Services.

A few of the children served by the Providers during 2004-06 fell outside the scope of the

PSAs. While all adjudicated children are Medicaid-eligible, the evidence established that

occasionally a child may not be a Medicaid beneficiary at the time of placement for various reasons:

the paperwork may not have been processed yet, the child may have cycled too quickly through the

facility for the paperwork to catch up with the child, or the child may have exceeded his or her

available benefits. [Tr. 59:10-60:1, 115:13-15, 139:1-6, 792:20-793:10; 794:4-23]. Although there

was no specific written service agreement for these non-Medicaid children, DHHS still expected,

and the Provider understood that it was obligated to provide, the same care as required by He-C

6350 and the child’s treatment plan, and that DHHS would pay for these services in accordance

with the He-C 6422 rules. [See, e.g., Tr. 793:18-23, 186:21-187:13, 246:17-248:18, 304:16-305:14,

323:6-9]. Both parties also understood that the Provider’s rate for these children was the same per

diem rate calculated under He-C 6422 rules as was incorporated into the PSAs. The only real

difference was that the Medicaid program could not be billed for the PNMI portion of the

Provider’s per diem rate. [Tr. 792:20-793:12]. Instead, the Provider would simply bill the full rate

to DHHS. [Tr. 48:6-10].

Additionally, while Odyssey House’s ATC and PACE programs were Medicaid providers,

its third program involved in this appeal - the Blue Heron program - was not a Medicaid provider.

[Tr. 246:2-4]. The Blue Heron program was classified as an independent living home which did not

qualify for private nonmedical institution status under Medicaid regulations. [Tr. 242:9-11, 245:16-

19] During SFYs 2004 and 2005, DHHS expected, and Blue Heron understood that it was

(b) Specify a capitation fee based on the cost of the services provided, in accordance with the reimbursement requirements prescribed in part 447 of this chapter; and (c) Specify when the capitation fee must be paid.

7

obligated to follow the He-C 6350 NH Residential Child Care Program Licensing Rules and the He-

C 6422 Rate Setting Rules for the adjudicated children placed in its facility. [Tr. 246:9-13]; Final

Decision at 5, DHHS Add. at 93; He-C 6350.15(b) (eff. Oct. 25, 1997). The only difference is that

it did not have to also comply with the Medicaid Payment rules contained in He-C 6420. Compare

He-C 6350.15(b) with (c) and (d) (eff. 10/25/97). In essence, the Blue Heron units of service were

indistinguishable from the units of service provided under the PSAs, except for the fact that DHHS

was required to pay the full per diem rate for the services without contribution from the Medicaid

program.

While Blue Heron did not have a formal service agreement like the PSAs with DHHS, it

received annual rate letters based on He-C 6422 from DHHS, and submitted a signed application to

become certified to accept placements pursuant to He-C 6350.13 just like the other Medicaid

Providers. [Tr. 245:4-246:13]. It provided services to referred children in SFYs 2004 and 2005

with the expectation of payment pursuant to the He-C 6422 rules, and actually was paid for those

services at the disputed rate. [Tr. 246:14-247:22]. All children were referred to the Providers’

programs and accepted by Providers into their programs in the same manner whether they were

Medicaid beneficiaries or not. Again, the only real difference was that for Medicaid beneficiaries,

the Medicaid-eligible portion of the services provided was billed to the Medicaid program and the

balance billed to DHHS.

II. THE PSAs RELY ON RATESETTING AS REQUIRED BY THE NEW HAMPSHIRE LEGISLATURE.

As stated above, the PSAs incorporate by reference He-C 6422. DHHS assured that through

the He-C 6422 ratesetting methodology rates paid to the Providers were reasonable. [Tr. 783:17-

21]. He-C 6422 was promulgated by DHHS in answer to the legislative directive to promulgate rate

setting rules for residential childcare providers. See RSA 170-G:4, XVII and XVII-a; RSA 170-G:5.

This directive was in response to the fact that prior to SFY 2004, residential provider rates had not

8

kept pace with costs, and in fact had not been increased in several years. [Tr. 310:23-311:2;

783:22-785:8]. The practical impact of this failure had a disproportionate impact on some

providers, when compared with others. [Tr. 784:15-785:5]. For example, Chase Home was being

paid only 50% of its He-C 6422 rate in 2004, while other providers (not included in the instant suit)

were paid more than their He-C 6422 rate in that same year. [Tr. 782:10-783:18]. The impacts of

these historical rates dramatically and negatively impacted the Providers. For example, one was

forced to become reliant on a food pantry to feed the children because the inadequate rate didn’t

cover the costs of care. [Tr. 359:21-22].

III. LEGISLATIVE HISTORY AND APPROPRIATIONS DO NOT EXCUSE DHHS’S FAILURE TO PAY THE PROVIDERS THEIR STATUTORY RATES.

DHHS’ budget is organized according to its divisions. [Tr. 804:6-11]. Within each budget

division, there are smaller accounting units called Program Appropriation Units (“PAU”). [Tr.

804:12-15]. In the years in question, the Providers were paid out of “class lines” 90, 92, and 93

within the Child and Family Services PAU of the Division for Children, Youth, and Families

portion of the budget. [Tr. 805:12-806:1; 818:2]. This PAU included more than residential

childcare providers. [Tr. 1332:2-4]. The only providers paid out of this PAU that were paid subject

to ratesetting, however, were residential childcare providers like the Providers. [Tr. 789: 14-21].

There was significant fluidity in the DHHS budget at that time. DHHS could transfer

money between PAUs, or even between divisions, subject only to getting the approval of the

General Court’s Fiscal Committee, and Governor and Council. [Tr. 893:12-20]. This was “routine

practice.” [Tr. 1087:15-20 (J. Fredyma)]. In 2004, DHHS moved money around at least a dozen

times, including at least one net reduction to the CFS PAU. [Tr. 893:21-894:3]. DHHS never went

to the Fiscal Committee and Governor and Council to request increases associated with the

ratesetting rules, however. [Tr. 1088:6-11].

9

A. 2004 & 2005 Appropriations and Legislative History

The Providers never agreed to accept less than the rate required by the He-C 6422 rate

setting rules based on the availability of appropriated funds, and instead invoked their rate appeal

rights. Final Decision at 9, DHHS Add. at 97. The Legislature also never mandated that the rates

calculated under the He-C 6422 rules would be based on appropriations. As the Trial Court found,

“[W]hen [DHHS] attempted to modify the provisions of He-C 6422 to make rates dependant upon

appropriations, the Joint Legislative Committee on Administrative Rule (‘JLCAR’), voted 6-4 to

enter a preliminary objection to the proposed rule, and later unanimously voted to make that

objection final.” Final Decision at 9, DHHS Add at 97; App. at 39 (P. Ex. 87). JLCAR’s stated

reason for the objection was that the proposed amendment to He-C 6422 was “contrary to

legislative intent.” App. at 40 (P. Ex. 87).

The evidence at trial overwhelmingly established that during 2004 and 2005, DHHS lapsed

millions of dollars into the general fund. In fact, in 2004, DHHS lapsed over $39 million, including

$3.3 million in “unrestricted” general funds, and in 2005, DHHS lapsed more than $30 million,

including $5.8 million in “unrestricted” general funds. App. at 79 (DHHS Ex. PPPPP); [Tr. 996:11-

14]. These funds were appropriations and revenues to the general fund which went unspent. [Tr.

1052:6-21]. These “unrestricted” lapses were over and above the lapses mandated by the legislature

via the budget. Id. These lapses far outnumber the amounts awarded to Providers by the trial court.

Just within Classes 90, 92, and 93, DHHS lapsed significant sums of money. The Legislature

appropriated, but DHHS did not spend $448,598 in 2004 and $349,143 in 2005. [Tr. 1161:14-18];

App. at 80, 81 (DHHS Ex. QQQQQ). These balances remained to be lapsed even after DHHS

transferred money out of line 93 in 2005. [Tr. at 1167:14-16; 1169:7-13: 1240:11-1241:20].

At trial, DHHS insisted that “the legislature did not intend in 2004 and five [sic] to provide

rate increases because they specifically took that money out of the budget.” [Tr. 1089:4-6]. It

10

could not point to any budget footnote or writing from the legislature that confirmed this. When

asked, DHHS’ witnesses were unable to supply the Court with a single piece of evidence that

DHHS even informed the Legislature that the amount appropriated in these two years would not

allow it to follow the rate setting rules. [Tr. 1093:3-1100:11]. Instead, the Legislature simply chose

not to fund a request by DHHS for an across the board “rate increase” for all classes of providers.

[Tr. 1116:12-1117:1]. DHHS never requested an increase to fund ratesetting under He-C 6422:

THE COURT: … [Y]ou never asked for a rate increase under the rules that were adopted pursuant to the statute. Instead what you did was you prior to the resolution of the appeals process at the very beginning you asked for a 2.5 percent increase for the providers in your maintenance budget and you asked for a 2.5 percent increase in your change budget? THE WITNESS: I believe that’s correct.

[Tr. 1009:1-17 (emphasis added)]. DHHS Comptroller Fredyma agreed that “rate increases” are

distinct from “ratesetting.” [Tr. 1116:17-1117:1].

The information DHHS provided during the budget process supports the conclusion that the

legislature assumed DHHS was complying with the rate setting law. In SFY 2005, DHHS informed

then Governor-elect Lynch that DCYF (which funds the Providers at issues in this case) spent about

$4 million less than its adjusted authorized budget in Fiscal Year 2004. [Tr. 951:16-23]. Five

months into Fiscal Year 2005, DCYF also projected a large surplus over the adjusted authorized

budget. [Tr. 952:1-6]. This information would not have alerted the legislature that DHHS had

insufficient appropriations to comply with He-C 6422. As the 2006 administrative panel realized,

in class 93 alone out of which the Providers were reimbursed, the legislature appropriated

$38,613,223 in each of SFYs 2004 and 2005. App. at 37 (P. Ex. 82). The Department’s own

financial records indicated that DHHS actually spent $36,050,450 in 2004 and $30,348,577 in 2005,

leaving substantial sums available to pay the Providers.4 App. at 37, 48 (P. Ex. 82; Ex. 92).

4 Plaintiffs’ Ex. 78, which was also submitted to the 2006 appeal panel as Appellants’ Exhibit 29, indicated that the actual amount spent out of class 93 in 2005 was $32,594,172. App. at 38 (P. Ex. 78). This explains why the 2006 panel indicated that DHHS underspent class 93 by approximately $6 million in its decision. App. at 33. The spreadsheet

11

B. 2006 Appropriations and Legislative History

The 2006 administrative appeal panel, affirmed by this Court, found that DHHS held

sufficient appropriations to pay the 2006 appealing Providers their calculated rates in all three years.

Petition of DCYF, 155 N.H. at 584. The panel found that that “DCYF could pay the higher rate [in

2006] without exceeding its appropriation.” Id. at 583. The affirmed 2006 Panel found that “while

DCYF was disregarding its own rate setting rules, carrying residential provider rates over from

previous years contrary to the law, and claiming it lacked the funds needed to pay providers the

proper rates, DHHS was returning money to the general fund.” App. at 27, 33 (P. Ex. 75).

The trial court collaterally estopped DHHS from contesting the sufficiency of the 2006

appropriations. Order on S.J. at 14, DHHS Add. at 66. To the extent this Court determines that this

ruling must be revisited, the evidence supports the panel’s original ruling. In 2006, DHHS included

in its budget request for class line 93 over $3.7 million specifically to pay for residential provider

ratesetting under He-C 6422. [Tr. 964:2-11; 1072:10-14]. Ultimately, over the course of the budget

process, only $417,351 came out of that $3.7 million budget item. [Tr. 1072:1-16].

While DHHS’ initial interpretation of the SFY 2006-07 biennial was to require a flat 5%

increase over SFY 2005 rates, the administrative panel and this Court determined that the 5%

increase must be over the rates established in the He-C 6422 rules. Petition of DCYF, 155 N.H. at

581. Neither the reduction in the requested amount for ratesetting, nor the change in methodology

prevent DHHS from paying the three 2006 Providers who appealed their rates at the amount

required by law. The legislature appropriated a total of $36,581,525 for SFY 2006 into class 93.

App. at 38 (P. Ex. 78). The evidence at trial confirmed that DHHS spent $34,604,468 out of that

line, $1,977,057 less than appropriated. App. at 48 (P. Ex. 92). Moreover, in 2006, DHHS lapsed

over $14 million, and of this, $713,000 were “unrestricted” general funds. App. at 79 (DHHS Ex. indicated, however, that this figure was pending fiscal committee and governor and council review. Plaintiffs’ Ex. 92, a report on July 7, 2007 to the Joint Fiscal Committee indicates that the actual amount spent out of class 93 was the lower figure of $30,348,577 making the difference between appropriations and spending even larger. App. at 48 (P. Ex. 92).

12

PPPPP); [Tr. 996:11-14]. The trial court awarded only $637,256.53 to Hannah House, NFI North

and Pine Haven for their collective 2006 underpayments. Final Decision at 11, DHHS Add. at 99.

SUMMARY OF ARGUMENT

DHHS’ brief provides a kitchen sink full of arguments for why the trial court erred in

fashioning a remedy for DHHS’ refusal to pay the Providers the rates they were awarded in the

RSA 170-G:4-a administrative rate appeals for SFYs 2004, 2005 and 2006. DHHS’ brief may be

distilled down to three main arguments: first, that the trial court erred in concluding that

enforceable contracts existed because there was no “meeting of the minds;” second, that its decision

violates the Separation of Powers Clause by infringing on DHHS’ discretion to manage its budget

as it sees fit; and third, that the relief ordered is barred by RSA 9:19 because DHHS cannot be

forced by the court to exceed appropriations.

DHHS’ insistence that enforceable contracts never existed necessarily depends on

convincing this Court that the trial court’s findings were lacking in evidentiary support or tainted by

an error of law. DHHS’ arguments fail because the record, including written Medicaid Provider

Service Agreements that expressly incorporated the He-C 6422 rate setting rules, and this Court’s

precedent in Bel Air v. NH Dept of Health and Human Servs., amply support the conclusion that

express and implied in fact contracts governed the relationship between the parties. DHHS has

waived its right to challenge the trial court’s construction of those contracts by not raising this issue

in the Notice of Appeal. To the extent DHHS is attempting to lure this Court into reviewing its

“contract existence” argument through the lens of de novo review by questioning the trial court’s

interpretation of the contract, that effort should be rejected.

The trial court’s Final Decision does not violate the Separation of Powers Clause because it

is not usurping DHHS’ power to spend money in accordance with legislative appropriations. To the

contrary, separation of powers is not implicated when the record supports the trial court’s

13

conclusion that DHHS’ actions in not paying the Providers at their awarded rates in violation of

DHHS own controlling statutes and rules. Further, the Separation of Powers Clause was not

implicated by a decision that upholds the integrity of the administrative rate appeal process and

rights proscribed by those statutes and rules.

A plain reading of the words used in RSA 9:19, combined with a recognition that RSA 9:19

must be read in its broader statutory context, reveals why RSA 9:19 does not provide DHHS an

affirmative defense to liability. As threshold matter, the trial court rejected DHHS’ claim that it

lacked sufficient appropriations to pay Providers their awarded rates. This conclusion was

supported in the record so it may not be overturned by this Court. Even if this Court finds plain

error in the trial court’s finding on this point, the trial court nevertheless correctly determined that in

the alternative RSA 9:19 does not bar the remedy even if appropriations were insufficient.

RSA 9:19 defines certain prohibited conduct by state officials; RSA 9:20 and :21 provide

the State with recourse in the event an official engages in that conduct. Nothing in these three

provisions indicates that they bar a claim by Providers. Rather, construing RSAs 9:19-:21 in the

broader appropriations context, which includes the DHHS Commissioner’s line item flexibility to

move funds within any PAU in its budget granted by the budget trailer bills, and RSA 491:8, results

in the logical conclusion that RSA 9:19 applies only to claims between the State and its officials.

The ability to shift funds within the departmental budget to cover deficits allows the Commissioner

to avoid incurring 9:20 liability in the event the department underestimates the cost of residential

placement in any given year. It also provides consequences in the event the Commissioner, in his

discretion, neglects to transfer or seek supplement appropriations to cover obligations to third

parties like the Providers. RSA 491:8 provides a remedy to the Providers for DHHS’ breach of

contract even if there are no funds left available to pay the judgment. Thus, the trial court correctly

rejected DHHS’ RSA 9:19 defense.

14

DHHS asserted several subsidiary claims of error by the trial court including to its rulings

that: the breach of contract claims from SFY 2004 and 05 are not time-barred; DHHS breached the

implied covenant of good faith and fair dealing; DHHS should be collaterally estopped from

contesting the sufficiency of appropriations to pay the 2006 awarded rates; and that the Providers

had standing to maintain a claim for statutory violation. Because there is no clear error in the trial

court’s rejection of DHHS’ positions on these points, the trial court’s decision must stand.

ARGUMENT

I. STANDARD OF REVIEW

DHHS suggests that all the issues it raises warrant de novo review by this Court. The

Providers disagree. First, DHHS’ challenges to the trial court’s findings of fact are binding “unless

they are not supported by the evidence or are erroneous as a matter of law.” Blagborough Family

Trust v. A&T Forest Prods., 155 N.H. 29, 36 (2006). This same standard governs review of the trial

court’s finding that DHHS breached the covenant of good faith and fair dealing. Livingston v. 18

Mile Point Dr., Ltd., 158 N.H. 619, 625 (2009); NH Dept of Environ. Serv. v. Marino, 155 N.H.

709, 717 (2007).

Second, DHHS’ challenges to the trial court’s finding that an enforceable contract was

formed, including issues related to whether “a meeting of the minds” occurred, “is a factual

question to be determined by the trier of fact as is the issue of whether a valid contract was created.”

Glick v. Chocorua Forestlands Ltd Partnership, 157 N.H. 240, 252 (2008) (citations omitted). This

Court “will sustain a trial court’s findings and conclusions unless they are lacking in evidentiary

support or tainted by an error of law.” Id. DHHS also challenges the Court’s interpretation of

certain terms of the contracts, and the scope of the contracts in its brief. DHHS did not, however,

raise these issues in its notice of appeal. Hence, these arguments have been waived. State v.

15

Blackmer, 149 N.H. 47, 49 (2003).5

Finally, the trial court’s interpretation of RSA 9:19 presents a question of law which is

reviewed de novo by this Court, Blackthorne Group v. Pines of Newmarket, 150 N.H. 804, 806

(2004), but its other challenged legal conclusions, including its application of the Separation of

Powers Clause to the facts of this case, is reviewed independently for plain error. Marino, 155 N.H.

at 717.

II. THE TRIAL COURT PROPERLY FOUND THAT ENFORCEABLE CONTRACTS EXISTED BETWEEN PROVIDERS AND DHHS.

DHHS asserts that the trial court erred by finding that enforceable express and implied in

fact contracts existed between itself and the Providers. The objective evidence presented to the trial

court supports its conclusion that valid, enforceable express and implied contracts existed which

required DHHS to pay the Providers rates calculated under the rate setting rules. DHHS argues

alternatively that even if the Providers have an enforceable contract right to rates set under the rules,

the Providers’ claims arising out of DHHS’ breaches in SFYs 2004 and 2005 are barred by the

three-year statute of limitations contained in RSA 508:4, I. The trial correctly discounted this

argument because the Providers’ administrative remedies were not exhausted until this Court issued

its ruling in June 2007. To the extent DHHS is also challenging in its brief the trial court’s

interpretation of PSA terms, as opposed to simply its ruling that contracts existed, that argument

should be disregarded because DHHS failed to preserve it in its Notice of Appeal. Accordingly, the

trial court’s decision in favor of the Providers on Count I of their Petition should stand.

A. The Trial Court’s Findings Regarding the Existence and Enforceability of Express Contracts are Not Lacking In Evidentiary Support or Tainted as a Matter of Law.

The trial court found that the PSAs contain “the essential elements of a contract, offer, 5 Additionally, DHHS never raised before the trial court the issue of whether the PSAs required Governor and Council approval pursuant to RSA 4:15. Hence, this argument should not be considered here. Weldy v. Town of Kingston, 128 N.H. 325, 335 (1986).

16

acceptance, consideration and a meeting of the minds.” Order on S. J. at 22, DHHS Add. at 74;

Final Decision at 3, DHHS Add. at 91. The trial court’s finding that the PSAs were enforceable,

express contracts must stand unless “lacking in evidentiary support or tainted by an error of law.”

Syncom Indus., Inc. v. Wood, 155 N.H. 73, 82 (2007). That there was an offer and acceptance is not

seriously disputed. In each of the three years in question, children for whom DHHS was financially

liable were referred to the Providers. The Providers performed the services required by He-C 6350

for each of the referred children, and DHHS paid a per diem fee for those services, albeit at a

disputed rate. [See, e.g., Tr. 793:18-23; 186:21-187:13; 246:17-248:18; 304:16-305:14; 323:6-9].6

The trial court correctly recognized that the PSAs meet the definition of contract announced

in Bel Air v. NH Dept. of Health and Human Servs., 158 N.H. 104 (2008). Order on S.J. at 22,

DHHS Add. at 74. In Bel Air II, this Court determined that a Medicaid provider service agreement,

similar to the PSAs at issue here, was a contract within the meaning of RSA 491:8. It determined

that the Bel Air agreement met the essential elements of a contract – offer, acceptance and

consideration – even though some of the contract terms were statutes and regulations incorporated

by reference into the contract. Id. It held that the important consideration is whether the general

structure and specific provisions are reasonably clear. Id. (quoting Chisholm v. Ultima Nashua

Indus. Corp., 150 N.H. 141, 145 (2003)).

For the purposes of determining the existence of a contract, there is no significant difference

between the agreement under consideration in Bel Air II and the PSAs at issue in this case. Both the

6 DHHS asserts that the Providers agreed that they did not have contracts with the State, and that this should be relevant to the Court’s review of the trial court’s decision. DHHS Brief at 24. First, the Providers’ statements are irrelevant; the Court looks to the objective language of the PSAs to determine whether they are contracts, not to the parties’ understanding of legal principles. Second, the referenced statements are cited out of context. As explained in testimony, DHHS categorizes providers as “vendored” or “contracted.” [Tr. 678:9-680:11; 786:14-788:23]. “Contracted” providers have a “P37” addendum limiting payments to the availability of appropriations. [Tr. 678:9-786:11]. Testimony that a Provider did not have a “contract” referenced this DHHS-directed nomenclature, not New Hampshire contract law. All the Providers’ witnesses testified that they believed the PSAs were contracts. [See, e.g., Tr. 152:9-13].

17

Providers and DHHS signed the PSAs. App. at 26 (P. Ex.58).7 Both the PSAs here and the Bel Air

agreement had virtually identical stated purposes “to set forth the terms and conditions upon which

the above named [provider] . . . shall be, and herein is, designated and selected by [DHHS] as a

qualified provider of medical services [under Medicaid].” App. at 10 (P. Ex.58); Bel Air II, 158

N.H. at 108. The PSAs further explicitly state like the Bel Air agreement that “[t]he Provider shall

… receive payments on a capitation fee basis within the meaning of 42 CFR 434.12 of the Medicaid

regulations ….”8 Id. The PSAs not only set forth the services to be provided and the rates to be

paid, but they also incorporate by reference the terms of New Hampshire rules and law which apply

to the provision of those services and rates just as in Bel Air II. Id. at 104. Moreover, DHHS

referred to the PSAs as contracts when they were presented to the Providers for signature back in

2003. App. at 9 (P. Ex.58) (cover letter from DHHS expressly refers to the attached PSA as “[t]his

contract.”). Thus, the trial court was justified in concluding that the PSAs at issue here are

enforceable contracts.

DHHS asserts in particular that the trial court erred because there was never a “meeting of

the minds” between the parties. “[T]he question of whether a ‘meeting of the minds’ occurred is a

factual question to be determined by the trier of fact, provided there is some evidence on which to

base such a finding. This court will not disturb the decision of the trier of fact unless the findings

are clearly erroneous.” Fleet Bank-NH v. Christy's Table, 141 NH 285, 288 (1996) (citations and

quotations omitted). The record supports the trial court’s conclusion that there was a “meeting of

the minds” binding DHHS.

Whether a “meeting of the minds” occurred is analyzed on an “objective standard.”

7 Plaintiff’s Exhibit 58 provides an example of a PSA, the other PSAs are nearly identical to the example PSA included in the Providers’ Appendix. The PSAs may be found at Plaintiff’s Exhibits 1, 10, 18, 28, 29, 40, 41, 49, and 58. 8 See supra n.4. To the extent that DHHS now asserts it cannot be held to the PSAs, it may well be calling into question its ability to receive Medicaid funds associated with Provider services. See DHHS Brief at 21. DHHS’ position that the PSAs do not specify a particular capitated fee (or even that the PSA is a contract) is at odds with the federal requirement that such a fee be included in the State’s contract with the private nonmedical institution. 42 CFR § 434.12.

18

Chisholm, 150 NH at 145; Syncom Indus., 155 N.H. at 82. “Parties generally are bound by the

terms of an agreement freely and openly entered into, and courts cannot make better agreements

than the parties themselves have entered into or rewrite contracts merely because they might operate

harshly or inequitably.” Mills v. Nashua Fed. Sav's and Loan Assoc., 121 NH 722, 726 (1981)

(citations omitted); Kilroe v. Troast, 117 N.H. 598, 600-01 (1977) (citation omitted). “Therefore, so

long as the structure and provisions of the written agreement are ‘reasonably clear,’ even if the

agreement does not resolve every issue, the court may find the existence of an enforceable

contract.” In re: Grand Jury Instructions (Docket No. 02-S-1154), 2005 WL 678994 (N.H. Super.

Ct. March 22, 2005) (Conboy, J.).

DHHS erroneously asserts that there was no “meeting of the minds” because the PSAs are

unclear as to their scope, which is at odds with the trial court’s ruling. Using a roundabout analysis

requiring the parsing of several paragraphs, DHHS concludes that the PSAs concern only payments

for Medicaid services. The plain language of the PSAs provides otherwise:

Compensation for Medicaid covered Residential Child Care Services provided under this Agreement shall be a per diem capitated rate and shall be made directly to the Provider as a Medicaid payment by the Medicaid fiscal agent. Board and care, as well as other non-Medicaid services, shall be compensated by a per diem rate computed by the Division and paid to the Provider by the Division, or in part by the appropriate Local New Hampshire Education authority if applicable.

App. at 13 (P. Ex.58) (emphasis added). The unambiguous meaning of this language is that the full

per diem rate will be paid to the Provider by DHHS. Exhibit A, Part IX of the PSA also supports

this conclusion, establishing how “the per diem rate to be paid to the Provider by the Division”

should be calculated. Id. at 14. See also He-C 6420.08(c)(3) (adopted 3/28/94) (“Reimbursement

of non-medicaid services, such as room and board, provided by residential child care staff shall be

made in accordance with He-C 6422.”); [Tr. 564:17-566:17].

Similarly, several programs (Odyssey House, NFI North and Pine Haven) provide

“intensive” services; under DHHS’ rules, they must provide special education to every child

19

referred to them in additional to board and care. He-C 6350.15(d). The payment of He-C 6422

rates for these intensive education services is incorporated into the PSAs in Exhibit A section VII.A.

Rate setting and the appeal of rates for education are governed by the same rules as the board and

care services which DHHS is required to follow in accordance with the PSA. The PSA on its face

contemplates payment of education rates; the education rates at issue in this case are not

compensable by a local education authority. [Tr. 49:9-18]. Thus, the rate set in the PSA clearly

includes non-Medicaid services, such as board and care and education.

Moreover, the price term set forth in the PSAs is not ambiguous. The express terms of the

PSAs require the Division to pay a per diem rate in accordance with He-C 6422. The PSAs

explicitly state that the parties “shall comply with the requirements” of He-C 6422 (“New

Hampshire Provider Rate-Setting Regulations”), which dictates how the rates at issue in the

administrative appeals underlying this action should be calculated. App. at 11 (P. Ex.58).

The PSAs even more specifically require that rates be set based on the He-C 6422 rules,

stating that:

In accordance with He-C 6422, New Hampshire Child Care Providers Rate Setting Regulation, the per diem rate to be paid to the Provider by the Division shall be a prospective rate based on the proposed budget submitted by the Provider and approved by the Division. The Medicaid [or PMNI] rate shall be determined by annual time studies identifying treatment related services.

Id. at 14. The appeal rights relied upon by the Providers in this matter are set forth in He-C 6422.25

and are clearly incorporated into the PSAs. By their plain language, the PSAs direct the Division to

pay the provider the per diem rate as set by the He-C 6422 rules; this rate is ultimately determined

by the RSA 170-G:4-a appeal panel if the parties disagree on the rate originally proposed by the

Division.

In its arguments regarding the “meeting of the minds,” the State wrongly concludes that the

initial PNMI rate for the first year of these multi-year contracts as expressly set forth in Section B.I.

20

is not subject to adjustment through the rate appeal process because the Providers agreed to accept it

as payment in full for the PNMI portion of their rate. Id. at 16. Recall, however, that the PMNI rate

is merely the portion of the rate for which DHHS can seek federal contribution from the Medicaid

program. The trial court’s reasonable interpretation of Section B.I was that if a rate appeal results in

a higher per diem rate, the PNMI rate set forth in that section would be retroactively increased as

well in proportion to the percentage of Medicaid services provided by the Provider. [Tr. 1211:13-

17]. DHHS’ interpretation would obligate it to unilaterally bear the brunt of the higher rate awarded

by the appeals panels without a pro rata increase in the PNMI portion. In any event, Exhibit B does

not affect the Providers’ ultimate recovery because the PSAs obligate DHHS to pay the entire per

diem rate, not just the PMNI rate. App. at 13 (P. Ex. 58). In addition, DHHS’ interpretation of this

provision would render other sections of the PSAs, which incorporate by reference statutory and

regulatory requirements, meaningless.9

DHHS also challenges whether there was a “meeting of the minds” by arguing that PSA Ex.

A, §XII makes the PSA subject to the availability of appropriations. The trial court properly and

reasonably found that the PSAs do not require the Providers to accept a lower rate than would

otherwise be calculated under the He-C 6422 rules based on the amount of appropriated funds.

Final Decision at 9, DHHS Add. at 97. In so finding, the trial court concluded that Part XII of the

contract, regarding “Future Legislation” did not apply to appropriations limitations. That section

states:

[T]he Provider agrees that, to the extent future legislative action by the New Hampshire General Court or Federal or State Court orders may have an impact on the services described herein, the Division has the right to modify service priorities and expenditure requirements under this Agreement so as to achieve compliance therewith, in which event the rate for such services will be renegotiated.

App. at 15 (P. Ex.58) (emphasis added). Contracts must be interpreted according to the plain 9 At the time the Providers all signed their respective PSAs in October 2003, they had already initiated the rate appeal process under He-C 6422 for their SFY 2004 rates. [E.g., Tr. 551:3-14]. DHHS has never asserted that by signing the PSAs the Providers waived their right to appeal their rates.

21

meaning of their terms. Ryan James Realty v. Villages at Chester Condo. Assoc., 153 N.H. 194,

197 (2006) (quotation omitted). This paragraph is clearly intended to reflect changes in the services

the Providers are required to provide, and the prioritization of those services. [See Tr. 551:19-

552:20]. Service-related changes (e.g., changes to the menu of services the Providers were

expected to provide to the children) were not raised in the appropriations bills cited by DHHS, nor

has DHHS offered evidence of any. Approval of the biennial budget had no impact on the services

or expenditure requirements with which the Providers were required to comply. Id. Thus, the

biennial budgets cannot be read to modify the PSAs as asserted by DHHS. See infra, Part III

(regarding the fact that appropriations, if relevant, were sufficient). The Court’s conclusions

regarding the meaning of PSA section XII, and the contractual status of the PSAs in general, is not

lacking in evidentiary support or tainted by an error of law.

In conclusion, the objective evidence demonstrates that a meeting of the minds did occur,

and that the PSAs are enforceable contracts. Kilroe, 117 N.H. at 600-01. DHHS has failed to

demonstrate that the trial court’s findings regarding the PSAs are lacking in evidentiary support of

tainted by an error of law.

B. The Trial Court was Correct in Finding that the Providers Held Implied-in-Fact Contracts with the State for Services Provided to Non-Medicaid Beneficiaries, and that Blue Heron had an Implied-in-Fact Contract with DHHS for the Services It Provided.

The evidence at trial established that there were a small number of children placed with the

Providers who fell outside the reach of the PSAs for either of two reasons. The first category

included Medicaid-eligible children who, for whatever reason, were not enrolled in Medicaid at the

time the Providers rendered services to them. The second category included those children placed

at Odyssey House’s Blue Heron Program, which was not a Medicaid provider. [Tr. 246:2-4]. The

Odyssey House PSAs do not apply to Blue Heron. The trial court found that the services rendered

to both categories of children were provided pursuant to implied-in-fact contracts. It concluded:

22

Based on the testimony at trial it is clear that the parties intended to contract for services to non-Medicaid eligible children in accordance with the PSA. All such children were in fact Medicaid eligible, they just may not have been enrolled by the State in Medicaid at the time they were first placed with the petitioners. The court also finds that there was an implied-in-fact [contract] for Blue Heron because it was required to comply with the He-C 6350 NH Residential Child Care Program Licensing Rules and the He-C 6422 Rate Setting Rules.

Final Decision at 5, DHHS Add. at 93. DHHS’ challenge fails because the record supports these

conclusions. Syncom Indus., 155 N.H. at 82.

Under New Hampshire law, the existence of a contract is a question of fact provided there is

“any evidence from which it could be found there was a contract between the parties.” Goodwin

Railroad, Inc. v. State of New Hampshire, 128 N.H. 595, 604 (1986) (quoting Harrison v. Watson,

116 N.H. 510, 511 (1976)). This Court has stated that:

A contract may be established by spoken or written words or by acts or conduct. . . . “An implied in fact contract is a true contract that is not expressed in words; the terms of the parties’ agreement must be inferred from their conduct.” Morgenroth & Assoc’s, Inc. v. Town of Tilton, 121 N.H. 511, 514, 431 A.2d 770, 772 (1981) (citing 1 A. Corbin, Contracts §18 (1963); Restatement of Contracts §5, comment a (1932); 1 S. Williston, A Treatise on the Law of Contracts §3 (1957)).

Id.; Final Decision at 5, DHHS Add. at 92 (quoting Morgenroth & Assoc., Inc. v. Town of Tilton,

121 N.H. 511, 514 (1981)). Here, the record supports the conclusion that the terms of the implied-

in-fact contracts covering the services to children outside the PSAs are essentially identical to the

terms of the PSAs, except for the payment source for the per diem rate.

DHHS could not dispute that children outside the PSAs receive the same services as those

falling under the PSAs. DHHS does not dispute that the Providers rendered services to them in

accordance with He-C 6350 or that the referral and intake process is also identical. It also does not

dispute that the per diem rate paid the providers for a child outside the PSAs is identical to the rate

paid for a Medicaid beneficiary under the PSA.

The manner in which children were referred and enrolled in the Blue Heron program was

also identical to the way children were referred to the other Odyssey House programs that had PSAs

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with DHHS. The rate calculated for the Blue Heron program was similarly subject to rate setting,

and it was obligated to abide by all the He-C 6350 and He-C 6422 rules just like the programs that

had an express PSA. [Tr. 246:9-13]. The only difference is that it did not have to also comply with

the Medicaid Payment rules contained in He-C 6420. Compare He-C 6350.15(b) with (c) and (d).

Like the other Providers, Blue Heron rendered services in accordance with He-C 6350, and billed

for all the services it provided with the expectation that it would be compensated at a rate generated

under He-C 6422. [Tr. 246:17-19]. DHHS paid for services. [Tr. 247:20-21]. Because the

children were adjudicated as delinquent, abused and neglected and/or in need of services, DHHS

had the same obligation to pay for the services provided at Blue Heron as it did for the services

rendered by programs that were Medicaid providers. See RSA 169-B:40; -C:27; and -D:29. In

essence, as the trial court found, the Blue Heron units of service are indistinguishable from the units

of service provided under the PSAs.

At trial, DHHS claimed that it warned the Providers that its payments would be limited by

available appropriations. However, the trial court determined that the relationship between the

parties meets the Morgenroth standard. Final Decision at 4, DHHS Add. at 92. DHHS could not

engage in ad hoc rulemaking to change the way rates were set; instead DHHS was bound by the law.

Appeal of Nolan (N.H. Personnel App. Bd.), 134 N.H. 723, 728 (1991). Furthermore, public

statements by DHHS officials, such as Commissioner Stephen, indicated that sufficient surpluses

existed in DHHS’ budget. No statement made by DCYF in a letter or email to providers can

withdraw DHHS from its legal obligations under an implied in fact contract to pay for services as

required by RSA 170-G and He-C 6422. Rather, it is clear from the conduct of the parties that they

both engaged in the rate appeal process in which the RSA 170-G:4-a appeal panel had the final say

on rates where the parties disagreed. Thus, on an objective basis, all of the parties had the same

expectations regarding the provision of services and the payment for those services supporting the

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trial court’s conclusion that implied-in-fact contracts existed.

C. DHHS’ Challenge to the Trial Court’s Interpretation of the Contract Terms Must be Disregarded Because It Did Not Preserve This Issue For Appeal.

An appellant may not argue in its brief a question not presented in the Notice of Appeal.

N.H. Supreme Ct. R. 16(3)(b); Sara Realty, LLC v. Country Pond Fish and Game Club, Inc., 158

N.H. 578, 582 (2009); Mahmoud v. Irving Oil Corp., 155 N.H. 405, 406-07 (2007). DHHS did not

raise any issues in its notice of appeal concerning the trial court’s interpretation of the PSA terms.

Thus, to the extent this Court interprets DHHS’ brief to include a challenge to the trial court’s

interpretation of the PSAs terms, rather than simply to contract existence, it should disregard them.

In its Notice of Appeal, DHHS presents the following question related to contract: “Did the

trial court err in finding that the Provider Service Agreements (PSA’s) are contracts or that the

contract claims are not barred by the statute of limitations.” DHHS Rule 7 Notice of Mandatory

Appeal, Part 13(1). DHHS frames this question in its Questions Presented as: “Did the trial court

err in finding that enforceable express or implied contract rights existed.” DHHS Brief at 1. Fairly

read, these question raise the issue of contract existence, not interpretation of the terms in the

contract which would be reviewed by this Court with a much stricter de novo standard. It is unfair

for DHHS to enlarge the scope of the appeal through its brief, and such arguments should be

disregarded. See Sara Realty, 158 N.H. at 582; Mahmoud., 155 N.H. at 406-07.

D. The Trial Court Properly Found that the Statute of Limitations Did Not Bar the Contract Claims.

DHHS wrongly asserts that because the Providers did not allege breach of the PSAs until

April 2009, the Providers are time-barred from obtaining a remedy for breaches occurring during

SFY 2004 and 2005. The trial court was “not persuaded that the Providers’ claim is barred by the

three year statute of limitations in RSA 508:4 because the Providers could not have pursued the

claim in this Court until the New Hampshire Supreme Court finalized its opinion that the price

25

terms were incorrect. Given that the New Hampshire Supreme Court issued the relevant opinions in

2007, the Providers’ claims fall well within the three year statute of limitations.” Order on S.J. at

22, DHHS Add. at 74. In support of its arguments, DHHS relies on the fact that the Providers

amended their complaint against the State and provided supplemental discovery responses to

interrogatory requests. Neither of these actions demonstrates that the statute of limitations has run.

Significantly, the statute of limitations is tolled while prerequisite administrative

proceedings are held. NH Div. of Human Services v. Allard, 138 NH 604, 607 (1994); see also John

H. v. Brunelle, 127 N.H. 40, 43 (1985) (Supreme Court indicates that administrative appeals process

to determine special education payment obligations should first be exhausted before seeking relief

in the courts). No breach of contract claim could be brought before the price term, as set forth

under He-C 6422, was determined. Without a price term set by the administrative appeal panel, a

contractual claim would not have been ripe. Otherwise, the statute of limitations period would have

begun to run before the Providers were aware of whether any money was due under the

administrative appeals process. Cf. State Employees’ Ass’n of New Hampshire v. Belknap County,

122 N.H. 614, 622 (1982). As the trial court found, the Providers could not have brought their

breach of contract claims against DHHS until a final ruling was made on the rates for SFYs 2004,

2005 and 2006. That final ruling in the SFY 2004 and 2005 rate appeals occurred on June 8, 2007,

with this Court’s decisions in Petition of Chase Home, 155 N.H. at 528. Therefore, the statute of

limitations does not bar the remedy ordered by the trial court. See John H., 127 N.H. at 43.

III. THE TRIAL COURT DID NOT VIOLATE THE SEPARATION OF POWERS CLAUSE OR RSA 9:19 BY REQUIRING DHHS TO FOLLOW ITS OWN CONTRACTS, STATUTES AND RULES, BY ENFORCING THE RATES AWARDED BY DHHS’ OWN ADMINISTRATIVE APPEAL PANEL, AND BY GIVING THE PROVIDERS THE REMEDY THEY DESERVED.

DHHS seeks to avoid its contractual and statutory obligations to pay for the actual costs of

care rendered to children placed with the Providers by claiming that the Separation of Powers

26

Clause and RSA 9:19 forbid the judicial branch from enforcing those obligations. DHHS attempts

to buttress its claims by asserting that the legislature failed to appropriate sufficient funds to pay the

awarded rates to the Providers. DHHS concludes that the amount appropriated by the Legislature

for the class lines out of which the Providers were paid manifests a directive to DHHS not to follow

the rate setting law. Because DHHS cannot meets it burden of proof on these affirmative defenses,

the trial court’s order should stand.

A. DHHS’ Own Witnesses Undermine Its Separation of Powers Argument Because They Testified that the Courts Dictate How Many Children Must Be Placed with Providers In Any Given Year.

This Court has recently reiterated that it interprets Part I, Article 37 of the New Hampshire

Constitution “practically”:

Unlike most state constitutions the language of the New Hampshire Constitution recognizes that the separation of powers in a workable government cannot be absolute. …. Part I, Article 37 contemplates no absolute fixation and rigidity of powers between the three great departments of government. Instead, it expressly recognizes that, as a practical matter, there must be some overlapping among the three branches of government and that the erection of impenetrable barriers among them is not required. Thus the New Hampshire Separation of Powers Clause is violated only when one branch usurps an essential power of another.

NH Health Care Ass’n v. Governor, ___ N.H. ___ , slip op. at 6 (N.H. Sup. Ct. Jan. 21, 2011)

(internal citations and quotations omitted). Here, DHHS asserts that the trial court’s final order

requiring it to pay the Providers at the rates awarded to them usurps DHHS’ essential power to

control its own budget. Id. The State’s own witnesses are not convinced by this argument. They

admitted that the judicial branch can require DHHS to expend appropriations, and even exceed

appropriations necessitating the transfer of funds or supplemental appropriations to cover the

deficit.

More specifically, the parties do not dispute that the legislature appropriates money to pay

for residential placement of children into class lines 90, 92 and 93 in the appropriate DCYF PAU.

[Tr. 697:4-6]. The amount of money DHHS spends each fiscal year out of these class lines for

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residential childcare services depends on two things – (1) the number of children adjudicated under

RSA 169-B, 169-C and/or 169-D and (2) the daily rate paid the provider for each day a particular

child is in placement. [Tr. 1304:21-1305:8]. DHHS’ witnesses asserted at trial that the first of

these factors – the placement of children – is actually outside its control. [Tr. 1223:2-5]. Rather, its

witnesses conceded that the number of children put into placement each year is controlled by the

courts. Id. DCYF fiscal administrator Dague Clark even conceded that if the court placed more

children into residential placement than anticipated, DHHS had no choice but to accept that child

into placement even if it caused a deficit in budget class lines. [Tr. 1223:2-10]. DHHS witness

Stephen Mosher clarified that DHHS would not technically spend more than appropriated. [Tr.

1034:6-12]. Rather, the legislature built into the biennial budget a mechanism for DHHS to move

money within and among the PAUs in its budget to cover actual or projected budget deficits in any

class line. 2003 Laws § 319:1 (HB 4-FN-A (Sept. 4, 2004)) (App. at 4). Alternatively, DHHS can

apply the process of “fiscal pending.” Mr. Mosher explained what happens when more children are

ordered into placement than anticipated:

Q: Okay. So -- so if you have gotten to the point in the fiscal year where you’ve run out of the appropriations . . . you then have to go to governor and counsel and the fiscal committee[,] get approval for more appropriations to make up your shortfall[,] and then you get authority to spend it to pay the obligations?

A: Right. We have -- Q: Okay A: -- we have one of two choices if -- if an entitlement program runs out of money go

to the legislature or fiscal committee and governor and counsel and ask that they put more money in even [sic] in the form of a surplus we found internally or additional funds or stop making payment to providers because if we run out of money on June 15th and we have no more money then we stop payments and we don’t make those payments until the next fiscal year.

Q: So that’s – that’s a process I think I’ve hear the term called fiscal pending? A: That’s correct. Q: For -- so it’s money that you’ve incurred an obligation for in one fiscal year that

just rolls over into the next fiscal year? A: That’s correct. Q: And then it’s paid out of the next fiscal year’s budget? A: Right.

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[Tr. 1034:6-1035:12]. If the judicial branch has power to require DHHS to spend more than

originally appropriated by ordering more children into placement than DHHS estimated for the

budget, it is illogical for DHHS to argue that the court is prevented by the Separation of Powers

Clause from causing a deficit in the very same class lines through enforcing the other half of the

appropriations equation – DHHS’ own legislatively-mandated rate setting rules.

B. Requiring DHHS to Abide by Its Own Statutes, Rules and Contracts Does Not Offend the Separation of Powers Clause.

The trial court correctly determined that the Providers’ claims were not barred by the

doctrine of separation of powers because its decision was not interfering with legislative spending.

Order on S.J. at 34, DHHS Add. at 86. This is not a case where the trial court was stepping into an

executive role and determining on its own how the Providers’ rates ought to be set and reimbursed.

Rather, as the trial court held: “the Court’s involvement is to address a contract dispute between the

parties, and require the respondent to adhere to its own statutes and regulations, as well as adhere to

the findings of its own administrative panel.” Id. Thus, the trial court was merely assuring that

DHHS followed its own controlling law. If the judicial branch did not have the authority to hold

DHHS to the law, there would be no check on DHHS at all. The Separation of Powers clause does

not leave the executive branch without any such checks and balances. See Opinion of the

Justices, 110 N.H. 359, 362 (1970).

More specifically, DHHS asserts in its brief that the trial court’s order violates the

Separation of Powers Clause because the trial court’s final order infringes on the Commissioner’s

discretion to spend money within an appropriated line item, and make transfers of appropriated

funds between programs in a particular manner. DHHS Br. at 38. When examined in the context of

this case it becomes clear why DHHS’ argument misses the mark.

First, the issue before this Court is enforcement of contracts DHHS not only entered

voluntarily, and but also drafted. By signing the contracts, DHHS agreed to the incorporation of the

29

He-C 6422 rules; rules DHHS adopted. See supra Part II.A (regarding the PSAs). Those rules

require DHHS to pay the Providers a particular rate. The trial court and ultimately this Court have

complete authority to hold DHHS to the terms of its contract. State v. Philip Morris USA, Inc., 155

N.H. 598, 610-11 (2007); RSA 491:8.

Second, DHHS can hardly claim there is a separation of powers issue when it is being asked

to follow the requirements of its own governing statutes, and to be bound by the findings of an

appellate body created and administered by DHHS. A legislative grant of authority to an

administrative panel to review the decisions of an administrative agency does not violate the

Separation of Powers Clause. See McKay v. New Hampshire Comp. Appeals Bd., 143 N.H. 722,

727 (1999). Finally, the Separation of Powers Clause does not bar the court from reviewing a

claimed constitutional violation (Count III of the Providers’ Bill of Complaint) by the actions of an

administrative agency. See Baines v. New Hampshire Senate President, 152 N.H. 124, 129 (2005)

(no deference given to other branches of government if they are not acting within constitutional

constraints).

DHHS’ discretion to manage its budget is not unlimited. Appeal of Morin, 140 N.H. 515,

518 (1995). The legislature has mandated that DHHS pay for the costs of residential placement and

that it implement rules to conduct rate setting for residential childcare providers. See RSA 169-

B:40; 169-C:27; 169-D:29; RSA 170-G:5. DHHS asserts without citation that the legislature

manifested a conflicting intent for it to ignore the rate setting rules in effect in SFYs 2004, 2005 and

2006. It did not present one witness from the legislative branch. It could not point to even one

document establishing that it ever informed the legislature that it could not or would not follow the

He-C 6422 rules given the amount appropriated into the class lines in question. [Tr. 1093:3-

1100:11]. Similarly, DHHS could not point to any law passed by the legislature releasing its

obligation to follow the He-C 6422 rules in SFYs 2004 and 2005, or to properly follow the 2006

30

ratesetting methodology prescribed by the legislature. [Tr. 1305:18-22 (Nancy Rollins)]. Thus,

DCYF was bound to follow those rules. Appeal of Smithfield Dodge, Inc., 145 N.H. 23, 25 (2000);

Appeal of Nolan, 134 N.H. at 728. This Court will not hesitate to reverse an agency’s actions if that

agency fails to comply with its own rules and regulations. Appeal of Morin, 140 N.H. at 518.

C. The Department’s Claimed Lack of Appropriations Does Not Change the Separation of Powers Inquiry

After nearly two weeks of trial, the trial court found “there were sufficient funds remaining

in the DHHS budget to pay the petitioners . . . .” Final Decision at 12, DHHS Add. at 100. The

facts elucidated at trial support this finding. Furthermore, as this Court has indicated, when the state

is a party to a contract, “heightened review is warranted” if the state tries to avoid its financial

obligations through a claim that it lacks sufficient funds.” See Tuttle v. NH Med. Malpractice Joint

Underwriting Ass’n, 159 N.H. 627, 654 (2009). Although discussed in a context of whether

legislation affecting contract rights is constitutional under the Contracts Clause, the Tuttle decision

instructs that “financial necessity, though superficially compelling, has never been sufficient of

itself to permit states to abrogate contracts.” Id. (quoting Lower Village Hydroelectric Assocs. v.

City of Claremont, 147 N.H. 73, 77 (2001) and Opinion of the Justices (Furlough), 135 N.H. 625,

635 (1992)). One of the factors the Tuttle Court noted for finding the challenged legislation

unconstitutional under the Contracts Clause was the lack of evidence in the record that the state

explored whether other avenues of funding the obligations had been exhausted or even considered.

Id. at 657-58. These same principles support a finding that DHHS cannot avoid its financial

obligations under its contracts with the Providers by claiming that insufficient funds were

appropriated into the particular line items from which the Providers were paid.

1. The Evidence At Trial Supports The Trial Court’s Finding that Appropriations were Sufficient.

Even if the amount appropriated is relevant to the question of whether the Providers are

31

entitled to a remedy, which it is not, DHHS failed to demonstrate a lack of appropriations at trial.

The trial court held based on the testimony and exhibits presented at trial that:

[T]here were sufficient funds remaining in the DHHS budget to pay the petitioners in accordance with the He-C 6422 rate setting rules. In January 2006, then Commissioner John Stephen was quoted in a Business New Hampshire article10 saying that in the SFY 2004 and 2005 biannual [sic] budget DHHS “lapsed almost $65 million to taxpayers through the general fund. We [filled] $47 million in deficits. We have a surplus today while providing essential services.” Ex. 95 Based upon this assertion and other relevant evidence, the court finds that there were sufficient funds to pay the petitioners in accordance with the rate setting rules in SFY 2004 and 2005. The court has already determined that there were sufficient funds for the 2006 petitioners in its October 21, 2009 Order (Fauver, J) and will not reconsider that issue here.11

Final Decision, at 12, DHHS Add. at 100. The trial court’s conclusion that there were sufficient

appropriations to pay the awarded rates to Providers may not be disturbed unless they are “not

supported by the evidence or are erroneous as a matter of law.” Blagborough Family Trust v. A&T

Forest Prods., 155 N.H. 29, 36 (2006). The trial court’s conclusion suffers from neither legal

infirmity.

DHHS’ own reports showed more than $39 million lapsing to the General Fund in fiscal

year 2004 and more than $30 million lapsing in fiscal year 2005. App. at 79 (DHHS Ex. PPPPP);

[Tr. 996:11-14]. In fact, the trial court and DHHS witness, Stephen Mosher engaged in an

extensive dialogue about this exhibit confirming the trial court’s ultimate conclusion that sufficient

funds existed in all the fiscal years in question to pay the amounts awarded to the Providers. [Tr.

998:21-1008:5].

In addition to the Business New Hampshire article cited by the trial court, the Providers

offered financial reports prepared by State officials that confirmed that DHHS had more than 10 DHHS asserts that the court erred by relying on this article because it was inadmissible hearsay. DHHS did not preserve this issue for appeal because it did not raise it in the Notice of Appeal. Regardless, the statement of the DHHS Commissioner while he was in office is an admission of a party opponent. [Tr. 621:8-622:14]. Moreover, Commissioner Stephen’s quote corroborates the other evidence in the record supporting the trial court’s conclusion, including the testimony of Department Witness Stephen Mosher. 11 See infra, Part IV (regarding the Court’s finding that the fact that DHHS is collaterally estopped from challenging the 2006 administrative panel’s conclusion that sufficient funds were appropriated to pay the Providers their 2006 awarded rates). See also Petition of DCYF, 155 N.H. 577, 580 (2007) (2006 administrative panel had authority to determine that sufficient funds were appropriated to pay the 2006 Providers their awarded rates).

32

sufficient funds available in SFYs 2004 and 2005 to pay the Providers their awarded rates. See,

e.g., App. 54-73 (P. Exs. 104, 105). Several reliable sources which were admitted into evidence,

including some prepared as official reports by the Department of Administrative Services,

demonstrate that DHHS returned tens of millions of dollars to general fund in fiscal years 2004 and

2005. First, the Department of Administrative Services lapse report for DHHS states that the

Department lapsed more than $40 million in fiscal year 2004 and more than $21 million in fiscal

year 2005. App. at 53 (P. Ex. 103). According to a “Citizens Report” published by Administrative

Services, “[d]uring FY 05, DHHS achieved $80 million in cost reductions from the original

appropriation. $36 million was used to fund increases in program costs, primarily Medicaid, and

the balance [$44 million] was returned to the State General Fund.” App. at 51 (P. Ex. 94). Where

the trial court’s findings of fact are supported, they must stand.

The trial court also correctly determined that DHHS was collaterally estopped from

contesting that sufficient appropriations existed to pay the three 2006 Providers the amount they

were underpaid. As set forth, infra at Part IV, this legal conclusion is not tainted by any error of

law, and in fact was approved by this Court already.12

It is disingenuous for DHHS to contend that the Separations of Powers Clause allows it to

avoid its contractual and statutory obligations when it had significant surpluses in its budget, and

the ability to seek supplemental appropriations. It had no legal obligation to lapse these funds. [Tr.

1080:22-1081:9 (J. Fredyma)]. Carried to its logical extreme, DHHS’ position would always allow

DHHS to avoid financial obligations through the transfer of appropriations out of the line item from

which that obligation was due to be paid.13 The very fact that the legislature gave the DHHS

Commissioner the ability to meet competing needs through the transfer of funds within and between

12 The trial court’s conclusion that sufficient 2006 appropriations existed to pay the 2006 Providers at their awarded rates is supported in the record even without the benefit of collateral estoppel. DHHS Ex. PPPPP; [Tr. 996:11-14] 13 The evidence at trial demonstrated that DHHS often transferred funds out of the DYCF PAU and out of lines 90, 92, and/or 93. See App. at 80-4 (DHHS Ex. QQQQQ); [Tr. at 1167:14-16; 1169:7-13: 1240:11-1241:20] (testimony of Dague Clark that $1.5 million was transferred out of class 93 to non-residential provider services).

33

PAUs to meet shortfalls with surplus in other class lines shows that the legislature intended for

DHHS to meet its financial commitments imposed by law and contracts from anywhere in its

budget. 2003 Laws § 319:1 (App. at 4). The facts demonstrate that DHHS had the funds necessary

to pay the Providers, and the ability to transfer them to class lines 90, 92 and 93, permitting this

Court to enforce a remedy for the Providers.

2. DHHS Failed to Prove that the Legislature Intended Not to Fund He-C 6422 Rate Setting For SFYs 2004 and 2005.

DHHS asserts that the legislature has the discretion to fully fund, partially fund or not fund

statutorily prescribed programs. The Providers do not dispute this general principle. The evidence,

however, supported that the Legislature provided sufficient funding in the three budget lines at issue

in each year in question to allow DHHS to comply with the He-C 6422 rules. [Tr. 1250:4-1252:11

(Dague Clark)]. While DHHS may have chosen to spend those appropriated funds elsewhere while

not meeting its legal obligations to the Providers, it can hardly use appropriation levels as evidence

of legislative intent that DHHS should not comply with the He-C 6422 rules or its contractual

obligations to the Providers.

DHHS asserts that the trial court’s order is inconsistent with legislative intent because it

found that the legislature did not appropriate money to fund rate increases. Semantics are

important in this context. DHHS comptroller James Fredyma agreed that rate increases are not the

same as rate setting. [Tr. 1116:12-1117:1]. Under rate setting as required by the He-C 6422 rules,

some providers would actually receive less than the rate they were being paid and some more. [Tr.

782:10-783:18]. Rate increases imply that all providers’ rates, including the rates of other types of

providers paid out of the same three class lines at issue, would be increased from current levels. [Id.

at 1099:18-1100:6]. Historically, a “rate increase” would be a flat increase which does not consider

the providers’ actual costs of providing services. The He-C 6422 rules set rates for each provider

based on its “actual costs,” and did not necessarily result in “rate increases” for all providers. It was

34

supposed to be implemented for the first time in SFY 2004. Significantly, the trial court challenged

DHHS to come up with a single document evidencing that it told the legislature during the SFY

2004-05 budget cycle that it could not do rate setting as required by He-C 6422 with the amount

appropriated. [Tr. 1092:10-1094:22; 1098:15-1100:6; 1102:14-22]. It could not come up with one.

Thus, it is inappropriate to assume that because DHHS informed the legislature that appropriations

levels would not allow a proposed rate increase that it intended for DHHS to not establish fair rates

or maintain compliance with He-C 6422 rate setting rules.

To the contrary, the trial court’s finding is bolstered by the fact that in 2005, DHHS sought

to amend the He-C 6422 rules to make the department’s obligation to follow the rules dependent on

the availability and continued appropriation of sufficient funds. DHHS Add. at 134 ¶ 12, Pet.’s Am.

Req. for Findings of Fact and Rulings of Law, Request 12. The Joint Legislative Committee on

Administrative Rules (JLCAR) rejected the proposal, and unanimously voted to issue a final

objection to it on the ground that such a rule was against legislative intent. Id.; App. at 39 (P. Ex.

87).

Furthermore, the fact that the He-C 6422 rules required DCYF to set rates based on the

formula and cost analysis contained therein prior to the start of each fiscal year supports the

Providers’ position that rate setting is independent of appropriations. See He-C 6422.05. DHHS

continues to ignore the reality that rates are only part of the equation. Rates do not affect the draw

down of appropriations until they are paired with a child and DHHS incurs the expense to pay a

provider for the residential services. At the beginning of the fiscal year, DHHS does not know how

many children will require residential placement; it offered no evidence that there is a quota of

children that must be served. In fact, it maintained at trial that the judicial branch ultimately

controls the number of children in placement each year. [Tr. 1223:2-5]. Thus, the amount of the

appropriation is an approximation of what it will cost the State each year for residential placement,

35

and the other services paid out of the relevant line items. The estimate may be high, or it may be

low. That is precisely why the legislature gave the Commissioner discretion, notwithstanding other

provisions of law to the contrary, to transfer funds throughout the department budget to meet

deficits. 2003 Laws § 319:1 (App. at 4); 2005 Laws § 177:4 (HB2-FN-A) (June 30, 2005) (App. at

4). The evidence presented at trial confirmed that DHHS regularly availed itself of this authority,

and even scheduled routine, bi-yearly department-wide transfers, along with monthly trips to the

fiscal committee and governor and council to seek approval for transfers. This practice was

standard operating procedure for DHHS. [Tr. 1086:9-1087:21 (James Fredyma)]. State policy has

provided DHHS with the flexibility to respond to the number of children in its care and the cost of

providing services to those children.

The Providers have consistently urged that DHHS, in its discretion, had several options

available to it as set forth in Petition of Strandell, 132 N.H. 110, 121 (1989), yet failed to avail itself

of any of them. See Tuttle, 159 N.H. at 657-58 (legislation that would affect contract rights not

reasonable where no other avenues of funding which would not interfere with contracts rights

exhausted or even considered). Instead, it decided to do the one thing a state agency should not do

– ignore the law – which in turn caused it to breach its contracts with the Providers. New

Hampshire law requires that rates be set in accordance with He-C 6422 (in 2004 and 2005) and

according to the legislative methodology (for 2006); it does not mandate the number of

beneficiaries that must be served. Thus, DHHS still had the ability to manage its budget through

management of the number of beneficiaries it served in addition to other options discussed in

Petition of Strandell. Nothing ordered by the trial court infringes on DHHS’ discretion to manage

its budget. If anything, the trial court’s final order is an admonition to DHHS to manage its budget;

not in any way it sees fit, but rather consistent with the law governing its actions.

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D. The Remedy Ordered by the Court Is Not Barred RSA 9:19.

DHHS mistakenly relies on RSA 9:19 to legitimize its breach of contract, the violation of its

statutory obligation to pay for the cost of residential care, and the unconstitutional taking of the

Providers’ private financial resources. When RSA 9:19 is examined in context, it becomes clear

why this is not the case. By its plain wording RSA 9:19 does not, as DHHS urges, bar the claim by

an individual who has rendered services on behalf of the State under a contract, even if

appropriations were exceeded.

First, it is undisputed that the New Hampshire legislature has enacted certain statutes,

including RSA 9:19, to assure that New Hampshire has a balanced budget. N.H. Health Care

Assoc., slip op. at 7. RSA 9:19 provides:

9:19 Exceeding Appropriations. – No state official, commissioner, trustee, or other person having control of public funds appropriated by the general court shall use any part of such funds for any other purpose than that for which they were appropriated, or expend any money or make any contract or bargain, or in any way bind the state in excess of the amount voted by the legislature.

This provision seeks to control the spending of appropriated funds in two ways: (1) it makes clear

that state officials should not use appropriated funds “for any other purpose than that for which they

were appropriated,” and (2) similarly warns state officials not to make contracts or in any other way

bind the state in excess of the amount voted by the legislature. The trial court’s order does not run

afoul of either clause.

RSA 9:19 must be interpreted “not in isolation, but in the context of the overall statutory

scheme. When interpreting two statutes that deal with a similar subject matter, [the court] construes

them so that they do not contradict each other, and so that they will lead to reasonable results and

effectuate the legislative purpose of the statutes.” State Empl. Ass’n of NH, SEIU Local 1984 v. NH

Div. of Personnel, 158 N.H. 338, 343 (2009) (citations omitted); Appeal of Mikell, 145 N.H. 435,

439 (2000). The Court may not “consider what the legislature might have said or add language that

37

the legislature did not see fit to include.” State Empl. Ass’n, 158 N.H. at 343.

Applying this standard, RSA 9:19 must be read in conjunction with RSA 9:20 and :21.

These latter provisions provide the State with recourse against state officials who violate RSA 9:19.

More specifically, they provide:

9:20 Personal Liability. – Any person who violates the provisions of RSA 9:19 individually or as a member of a board shall be personally liable for the amount of the excess expended, contracted, or bargained above the appropriation. 9:21 Removal for. – Any commissioner, trustee or agent who shall violate said provisions shall be removed by the governor, and his successor shall be appointed in conformity to the law providing for filling vacancies in such positions.

RSA 9:19’s plain meaning, when read in conjunction with RSA 9:20 and :21, is that the proscribed

spending conduct is prohibited, and if the official engages in the prohibited conduct, he or she is

subject to consequences including personal liability to the State. If RSA 9:19 provided a complete

bar to Providers’ recovery, RSA 9:20 would be superfluous because the State could never be found

liable in the event an official committed the State beyond the amount appropriated to pay for the

obligation. See State v. Duran, 158 N.H. 146, 155 (2008) (“an interpretation that renders statutory

language superfluous and irrelevant is not a proper interpretation.”). DHHS’ reading would also

encourage a department to transfer funds out of the line item from which an obligation was

supposed to be paid in order to avoid legal obligations. This reading unreasonably causes RSA 9:19

to run afoul of the Contracts Clause contained in the New Hampshire Constitution. See Tuttle, 159

N.H. at 654-55; see also State Empl. Ass’n, 158 N.H. at 343. Hence, DHHS’ efforts to use RSA

9:19 as a shield to liability must be rejected.

Importantly, the statutory framework for DHHS’ control of expenditures also includes 2003

Laws §319:1, IV (HB 4) and 2005 Laws §177:4, III (HB 2), the “trailer bills” to the SYF 2004-05

and SFY 2006-07 biennial budgets.14 These bills permit the DHHS Commissioner to move funds

14 2003 HB 4 §319:1, IV provides:

38

within and among PAUs to avoid the very problem RSA 9:19 seeks to avoid – financial

commitments beyond the amount appropriated in a particular class line. Again, semantics are

important to this analysis. As DHHS witness Stephen Mosher explained, if a court-ordered

placement required DHHS to spend more out of the class lines 90, 92 and/or 93 than originally

appropriated, DHHS routinely takes one of three steps: (1) Identifies available appropriations and

seeks the approval of the Fiscal Committee and the Governor and Council to transfer those funds

within the DHHS budget; (2) Seeks a supplemental appropriation from the Fiscal Committee and

the Governor and Council to pay the provider; or (3) If close to the end of the fiscal year, pays the

provider during next fiscal year. [Tr. 1034:6-1035:12 (Stephen Mosher). See also Tr. 1240:11-

1240:21 (Dague Clark)]. In this way, the court-ordered placement which causes a contractual

obligation to a provider above and beyond the original appropriation is covered without causing the

Commissioner to run afoul of RSA 9:19.

In essence, by granting to the Commissioner line item flexibility to move funds within the

DHHS budget to meet the department’s obligations to pay for residential placement, the legislature

has provided both the answer to the problem, and through RSA 9:20, consequences if the

Commissioner chooses not to move sufficient funds to a line to meet DHHS’ obligations. The

legislature leaves the department’s (i.e., executive branch’s) discretion to expend funds intact, thus

avoiding a separation of powers problem, but if the department does not prudently move funds to

cover contractual obligations, the Commissioner is at risk of personal liability to the State to make

up the deficit. RSA 9:20.

Notwithstanding the provisions of RSA 9:17-a or any other provision of law to the contrary and subject to the approval of the fiscal committee of the general court and governor and council, for the biennium ending June 30, 2005 the commissioner of the department of health and human services is hereby authorized to transfer funds within and among all PAUs within the department, as the commissioner deems necessary and appropriate to address present or projected budget deficits, or to respond to changes in federal laws, regulations, or programs, and otherwise as necessary for the efficient management of the department.

App. at 4. 2005 HB 2 §177:4, III is worded identically except that the biennium reference is to the one ending June 30, 2007. Id.

39

DHHS asserts that the trial court should not have considered its authority under 2003 HB 4

to seek transfer of funds during the course of the fiscal year because its obligation to set rates for the

Providers technically comes before the start of the fiscal year and would be dependent on what the

legislature appropriated into class lines 90, 92 and 93 at that time. It argues in the alternative that

even considering 2003 HB 4, it would have been futile for it to seek approval of a transfer of funds

to increase appropriations available to pay the Providers who appealed their rates. It asserts that the

legislature already manifested an intent for DHHS not to do ratesetting because it failed to fund

DHHS’ request for a provider rate increase. As discussed already, DHHS’ logic is flawed.

It is correct that He-C 6422.05 anticipates that DHHS will set the Providers rates prior to the

start of the fiscal year. That also means, however, that in the normal course, the rates would be set

prior to the final approval of the State Budget. That was certainly the case for the SFY 04-05

Biennial Budget, which was not finalized until September 2003. See 2003 HB 4-FN-A (approved

Sept. 4, 2003). Thus, as Providers have maintained, the rate setting process as contemplated by

DHHS’ own rules is independent of the budget process. [Tr. 785:11-786:11 (Tim McAvoy) (He-C

6422 rules independent of appropriations)]. For good reason. The rates do not independently cause

DHHS to exceed appropriations. The rate as calculated under the He-C 6422 rules is simply the

reasonable, allowable, actual cost to each Provider to provide the menu of services mandated by

DHHS to a child in placement for one day. See He-C 6422.17(e), .20 and .21. The legislature

charged DHHS with paying that reasonable, allowable, actual cost of each day of placement. RSA

169-B:40; 169-C:27; 169-D:29. As already stated, supra, the fact that rates are set independent of

the appropriations cycle undercuts DHHS’ argument that fluctuations in appropriations levels

dictate whether DHHS follows the rate setting rules.

DHHS’ alternative argument – that it would have been futile to seek approval of an

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appropriations transfer to comply with the law - is equally flawed.15 The trial court determined that

DHHS failed to inform the legislature during the SFY 2004-05 budget cycle that the amount

appropriated in class lines 90, 92 and 93 would be insufficient to allow it to do rate setting under the

He-C 6422 rules. This finding should not be disturbed because it was supported by the evidence

and was not erroneous as a matter of law. Blagborough Family Trust, 155 N.H. at 36. The reality

is, DHHS chose not to ask for a funding transfer. That was within its discretion, but that does not

excuse its obligations to the Providers. Cf. Tuttle, 159 N.H. 627, 657-58 (2010).

Nowhere in this statutory scheme is there a suggestion that the Providers are not entitled to

be paid the amount required by their contracts or the rate setting laws.16 In other words, RSA 9:19

is not an affirmative defense to the Providers’ claims at all; it provides recourse to the State if it

should choose to seek reimbursement from the Commissioner for any amount it now has to pay if

that amount should exceed appropriations. Accordingly, the trial court’s finding that DHHS entered

into enforceable express and implied in fact contracts with the Providers, and violated statutes and

the He-C 6422 rules entitling them to a remedy, is not impacted by RSA 9:19. The trial court order

may establish that DHHS ran afoul of RSA 9:19 if there truly are insufficient appropriations in the

DHHS budget to cover the judgment, but that issue is between the state and DHHS officials. See

RSA 9:20 and :21. RS 9:19 would not prevent recovery by the Providers.

The trial court correctly recognized that RSA 9:19 cannot bar the Providers’ contract claims

for another reason. Final Decision at 13, DHHS Add. at 101. Just as the legislature provided a

mechanism to the State for seeking recourse against state officials when they enter into a contract

15 It would have been illogical for DHHS to seek a supplemental appropriation to fund its obligations to the Providers. As the trial court found, DHHS lapsed tens of millions back to the general fund in both SYFs 2004 and 2005 indicating that it had more than enough surplus available to it to seek a transfer of appropriations. Regarding SFY 2006, see infra, Part IV. 16 In addition, RSA 9:18 makes clear that when DHHS incurs a legally enforceable obligation to pay residential providers at the rates required by law, the appropriations needed to fulfill those obligations may not lapse. More specifically, this statute provides in relevant part: “Except as otherwise specially provided, all unexpended portions of general appropriations for which a legally enforceable obligation has not been incurred during the fiscal year for which they were appropriated shall lapse at the end of each fiscal year.” RSA 9:18, II (emphasis added). If a legally enforceable obligation has been incurred, DHHS does not have the authority to lapse funds.

41

that obligates the State beyond appropriations, it has also provided in RSA 491:8 a mechanism for

paying the injured party in the event appropriations were truly exceeded, and therefore not available

to pay the judgment. As the trial court notes, this provision provides:

The attorney general, upon the presentation of a claim founded upon a judgment against the state [for breach of contract], shall submit the claim to the department or agency which entered into the contract, and said department or agency shall manifest said claim for payment from the appropriation under which the contract was entered into; provided, that if there is not sufficient balance in said appropriation, the attorney general shall present said claim to the general court for the requisite appropriation.

RSA 491:8 (emphasis added). Thus, whether the plain wording of RSA 9:19 is analyzed in

isolation, or as part of the overall statutory scheme to which it is a part, including RSA 491:8, it

does not provide support for reversing the trial court’s decision.

IV. THE TRIAL COURT’S DECISION REGARDING COLLATERAL ESTOPPEL WAS CORRECT AND DHHS’ ATTEMPTS TO REVIST DECISIONS MADE BY ADMINISTRATIVE APPEALS PANELS AND UPHELD BY THIS COURT ARE CONTRARY TO NEW HAMPSHIRE LAW.

The doctrine of collateral estoppel prohibits DHHS from re-litigating facts determined by

the 2006 administrative panel and affirmed by this Court. “Collateral estoppel . . . is an extension

of res judicata which prevents the same parties, or their privies, from contesting in a subsequent

proceeding on a different cause of action any question or fact actually litigated in a prior suit.”

Scheele v. Village District of Eidelweiss, 122 N.H. 1015, 1019 (1982); see also Grossman v.

Murray, 141 N.H. 265, 269 (1996) (“In its most basic formulation, the doctrine of collateral

estoppel bars a party to a prior action, or a person in privity with such a party, from relitigating any

issue or fact actually litigated and determined in the prior action.”) (quotation omitted). The trial

court found that collateral estoppel applied to the 2006 hearing panel’s decision that “DCYF, more

likely than not, has or had the funding needed to pay [the] three Appellants the 2005 calculated rate

plus 5% from the beginning of the [2006] fiscal year.” Order on S.J. at 14, DHHS Add. at 66.

DHHS raised the issue of 2006 appropriations levels to justify its failure to pay the 2006

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Providers rates that took the 2005 Panel’s findings into account. See Petition of DCYF, 155 N.H. at

581-84. This Court noted that “DCYF contend[ed] that the hearing panel disregarded evidence that

funding was insufficient to pay the rate ordered,” and therefore, that rates should properly be set

lower. Id. at 582. This Court affirmed the administrative panel’s finding that the appropriations

were sufficient to pay the 2006 awarded rates. Id. at 583.

DHHS now asserts that this Court must address for SFY 2006 “whether the Department

could be required to transfer money not appropriated for the purpose of paying residential providers,

or if it had an obligation to seek a supplemental appropriation.” DHHS Brief at 34. However, this

Court has already found that “DCYF could pay the higher rate [in 2006] without exceeding its

appropriation.” Petition of DCYF, 155 N.H. at 583. This Court also found that the hearing panel

had the authority to determine this question in the context of DHHS’ assertion that rates could not

be set higher than the appropriations level. Id. DHHS’ attempt to improperly revisit this adverse

finding is not permitted under Farm Family Mut. Ins. Co. v. Peck, 143 N.H. 603, 605 (1999). The

Superior Court’s ruling on collateral estoppel is consistent with this Court’s prior rulings. DHHS’

recapitulated quarrels with the 2006 administrative agency’s final ruling and with the trial court’s

order in this matter are immaterial.

V. THE TRIAL COURT WAS JUSTIFIED IN CONCLUDING THAT DHHS VIOLATED THE COVENANT OF GOOD FAITH AND FAIR DEALING.

The trial court properly found that DHHS had failed to act in good faith with respect to its

contractual obligations to the Providers. “In every agreement, there is an implied covenant that the

parties will act in good faith and fairly with one another.” Livingston v. 18 Mile Point Drive, Ltd.,

158 N.H. 619, 624 (2009). Even governmental units must abide by the implied obligation to act in

good faith and deal fairly with the other party to a contract. Id.; Leary v. City of Manchester, 90

N.H. 256, 257 (1939). The Court will “uphold a trial court's determination regarding the breach of

the implied covenant of good faith and fair dealing unless it is not supported by the evidence or is

43

legally erroneous.” Livingston, 158 N.H. at 624. The trial court in this case found that there was a

breach of the covenant of good faith and fair dealing because DHHS lapsed funds from class lines

90, 92, and 93 without paying the Providers and “failed to even attempt to go to the Fiscal

Committee and Governor and Council but rather just lapsed over $65 million from DHHS, which it

was not obligated to do.” Final Decision at 6, DHHS Add. at 94; [Tr. 1081:8-9 (J. Fredyma)].

As discussed above, DHHS failed to even attempt to meet its contractual obligations. See

Supra, Part III. However, under the terms of the contract, RSA 170-G and He-C 6422, DHHS had

an implied obligation to make a good-faith effort to pay the Petitioners. This Court has found such

conduct to violate the implied covenant of good faith and fair dealing. Seaward Constr. Co. v. City

of Rochester, 118 N.H. 128, 129-30 (1978) (even though “[t]he express language in the agreement

is perfectly clear that the city will not be required to expend its own funds for payment [under the

contract] . . . it is also reasonably clear that the city was under an implied obligation to make a

good-faith effort to obtain funds from HUD to pay the plaintiff.”).

The evidence demonstrated that DHHS was unable to provide the trial court with proof that

it had even clearly and unequivocally informed the Legislature that the appropriations levels would

not support ratesetting under RSA 170-G and He-C 6422. DHHS transferred funds out of the

appropriations lines under which the Providers were paid, and failed to attempt to move funds into

those lines to meet its obligations.17 See, e.g., supra Part III.C.1. This record amply supports the

Final Decision.

VI. THE TRIAL COURT WAS CORRECT AS A MATTER OF LAW IN FINDING THAT PROVIDERS MAY ASSERT A STATUTORY VIOLATION CLAIM.

On the question of statutory violations, the trial court found that “the legislature has waived

sovereign immunity as to RSA 169-B, RSA 169-C, and RSA 169-D.” Order on S.J. at 32, DHHS

17 DHHS asserts, inexplicably, that the trial court erred in granted equitable relief under the Providers’ good faith and fair dealing claim. DHHS Brief at 28. The implied covenant of good faith and fair dealing is a common law obligation. Centronics Corp. v. Genicom Corp., 132 N.H. 133, 138-39 (1989). The relief sought by the Providers’ under the covenant is a damages remedy based on the contractual damages in this case. No issue of sovereign immunity applies.

44

Add. at 84; Final Decision at 8, DHHS Add. at 96. In addition, the trial court found that the

Providers have standing to bring their claims. Order on S.J. at 34, DHHS Add. at 86; Final

Decision at 8, Add. at 96. The trial court’s findings are correct as a matter of fact and law, and

should be upheld on appeal.

A. DHHS Waived Any Argument Regarding Sovereign Immunity, But Notwithstanding That Waiver, the Trial Court’s Finding that the Providers Have a Right to Suit Based on the State’s Failure to Pay The Rates Required by He-C 6422 and 2005 HB 1 and 2 is Correct as a Matter of Fact and Law.

The Questions Presented in DHHS’ brief fail to raise sovereign immunity as an issue.

Accordingly, DHHS has waived its right to raise this issue. N.H. Supreme Ct. R. 16(3)(b); Appeal

of Toczko, 136 N.H. 480, 487 (1992); Mahmoud v. Irving Oil Corp., 155 N.H. 405 (2007).

Notwithstanding that waiver, the trial court was correct in finding that sovereign immunity

is not a bar to statutory recovery. John H. v. Brunelle, 127 N.H. 40, 43 (1985). John H. sets out the

analysis a court should follow in determining whether the legislature intends to permit suit based on

the provisions of the statute in question. In John H., parents brought suit in federal court against

State agencies and the local school district to force payment for the special education costs of their

child. Id. After confirming the need to complete administrative appeals to determine payment

obligations, the Court held that “the political subdivision expressly obligated [by RSA 186-C] to

respond to the claims of the parents is the local school district. When there is a further appeal [from

the administrative process] to the civil courts, the respondent logically should be the same, and the

local school districts therefore may be sued.” Id. at 45. It went on to hold that the legislature had

not waived sovereign immunity against the State because it had not placed the payment obligation

for special education costs on it. Id.

Applying this analysis here results in the opposite conclusion. DHHS is the “political

subdivision” that has the obligation to pay for the residential child care. RSA 169-B:40; 169-C:27;

169-D:29. The legislature also mandated that the “expenses” for the residential placements of

45

children be reimbursed by DHHS through per diem rates calculated according to ratesetting, RSA

170-G:4, XVII and XVII-a, and that providers would have a right to appeal the calculation of the

rate to a three-person panel. RSA 170-G:4-a. By refusing to pay for all the expenses incurred for

placements with petitioners in SFYs 2004, 2005 and 2006 through its refusal to reimburse Providers

at the higher rates awarded by the administrative panels, DHHS violated its obligation to pay for all

the expenses of such placements, and also exposed itself to suit by the Providers after they

exhausted their administrative appeal rights. DHHS fails to demonstrate why the John H. analysis

does not apply. A lawsuit which relies on specific appellate rights established in the Providers

hardly will result in a “profligate encroachment of the public treasury,” as claimed by DHHS.

DHHS Brief at 42. The trial court’s finding regarding sovereign immunity was properly based upon

the express obligation to pay Providers placed on DHHS by the Legislature and DHHS’ obligation

to determine the rates owed by DHHS to the Providers.

B. The Trial Court’s Finding That the Providers Have Standing to Assert A Claim for Violation of Statutes and Associated Laws Was Correct As A Matter Of Fact and Law.

The Department asserts that Providers lack standing to assert a private right of action under

RSA 169-B, 169-C and 169-D. This argument misses the mark. See John H., 127 N.H. at 45.

As set forth above, there is an interrelated set of statutes and the rate setting regulations that

flow from DHHS’ obligation to pay for the cost of placement. The legislature obligated DHHS

with a “duty” to “[e]stablish rates for all services, placements and programs which are paid for by

the department pursuant to RSA 169-B:40, 169-C:27, 169-D:29, and any services required to be

provided by the department pursuant to paragraph II of this section.” RSA 170-G:4, XVII. In RSA

170-G:4-a, the legislature expressly created a right of any provider to appeal “decisions of the

department relative to rates” through an administrative appeal. RSA 170-G:5 required DHHS to

establish regulations to carry out these obligations; hence the adoption of the He-C 6422 rules.

46

The ability to seek redress for DHHS’ failure to pay for the expenses of payment through the

setting of an inadequate rate is necessarily implied from the legislatively provided right for

providers like Petitioners to appeal DHHS’ rate decisions. RSA 170-G:4-a, I. The decision not to

set rates at the level required by law is “a decision of the department relative to rates.” The creation

of an appeal mechanism would be meaningless if there was no way to enforce the results of the

appeal. This process was instituted to assure that Provider rates are set and paid based on the

regulatory methodology. Island Shores Estates Condo. Assoc. v. City of Concord, 136 N.H. 300,

307 (1992).

As the trial court recognized, the appeals process does not give the Providers a “blank

check.” DHHS Br. at 44. Instead, He-C 6422 and RSA 170-G assure that the computed rate is

reasonable, and only covers allowable costs. He-C 6422.17(e), .20 and .21. The appeals process

merely assures that this methodology is employed fairly and that the Providers are reimbursed for

the actual, reasonable, allowable costs of State-mandated care. 18 Appealing providers must have a

right to bring suit under DHHS’ statutory obligations to pay for the cost of residential placements.

VII. THE TRIAL COURT’S ORDER CAN ALSO BE UPHELD ON THE GROUND THAT DHHS’ ACTIONS CONSTITUTE AN UNCONSTITUTIONAL TAKING.

The trial court refused DHHS’ motion for summary judgment on the Providers’ claim for

unconstitutional taking under both the New Hampshire (pt. I, arts. 2 and 12) and Federal

Constitutions (U.S. Const. Amends. V and XIV). It found this Court’s decision in State v.

Robinson, 123 N.H. 665 (1983) helpful in upholding the claim. In its Final Order, the trial court

held that it would not address the unconstitutional taking due to its findings on breach of contract,

18 DHHS’ reliance, by analogy, on federal law with respect to this question is without basis. In Long Term Care Pharmacy Alliance v. Ferguson, the rules at issue did not provide an express appeal right in an individual provider. 362 F.3d 50 (2004). The Court relied on the right of the Secretary of Health and Human Services to enforce the federal law. Id. at 58. In contrast, the New Hampshire process under RSA 170-G requires the department to set rates for individual providers, and establishes a right of appeal in “[a]ny service provider” regarding “decisions made by the department relative to rates or certifications pursuant to RSA 170-G:4, XVII or XVIII by filing an appeal with the commissioner of health and human services.” RSA 170-G:4-a, I. This language is not “broad and nonspecific,” but instead suggests direct and explicit private rights. Long Term Care Pharmacy Alliance, 362 F.3d at 58.

47

after recognizing that “contracts are among the more traditional forms of property accorded

constitutional protection.” Final Decision at 7; DHHS Add. at 95. To the extent that this Court

determines that the Providers are not entitled to a remedy based on their breach of contract and

statutory violation claims, it is appropriate to uphold the remedy ordered by the trial court

alternatively on the ground that DHHS’ conduct constitutes an unconstitutional taking. 123, N.H. at

669 (private entity’s financial resources can constitute “property” under a takings analysis).

In Robinson, a private attorney appealed on the basis that the trial court’s refusal to

reimburse all the expenses he incurred in representing an indigent criminal defendant amounted to

an unconstitutional taking. Id., 123 N.H. at 669. This Court found for the private attorney

acknowledging that the State had an obligation to pay for the cost of indigent defense. Id. Here,

like in Robinson, the State has a statutory obligation to pay for the costs associated with the

residential placement of these children. See RSA 169-B:40; 169-C:27; 169-D:29. It would be

meaningless to place these children with providers if the children did not receive the services they

need, and asking the Providers to fund the cost of these services is an unconstitutional taking of

their financial resources. Robinson, 123 N.H. at 669.

Application of Robinson does not require a constitutional obligation. In this case, the State

has obligated itself by statute, rule, and contract to pay for the reasonable costs associated with

providing necessary services to the children of New Hampshire taken into its custody. The Court in

Robinson declared a taking because

[t]he public has the responsibility to pay for the administration of criminal justice, and the legislature or the courts have no right or legitimate reason to attempt to spare the public the expense of providing for the costs associated with the defense of an indigent by thrusting those expenses upon an individual citizen who happens to be an attorney.

Id. at 669. The State has an obligation to pay for the administration of services for children in its

care. It has no “right or legitimate reason” to spare the public the expense of paying those costs by

requiring non-profit residential childcare providers to shoulder its financial burden. Id. By failing

48

to pay the Providers a rate that covers the actual cost of the mandated services, the State is

disregarding its constitutional obligations. Youngberg v. Romeo, 457 U.S. 307 (1982) (“When a

person is institutionalized -- and wholly dependent on the State[,] . . . a duty to provide certain

services and care does exist.”); Taylor v. Ledbetter, 818 F.2d 791, 796 (11th Cir.1987) cert.

denied, 489 U.S. 1065 (1989) (holding that the “such similarities exist between a prisoner's

situation and the situation of a minor forced into a foster home that we are justified in holding that

the situations are sufficiently analogous to support a section 1983 action”); DeShaney v.

Winnebago County Social Services Department, 489 U.S. 189, 200 (1989) (finding that “[h]ad the

State by the affirmative exercise of its power removed Joshua from free society and placed him in

a foster home operated by its agents, we might have a situation sufficiently analogous to

incarceration or institutionalization to give rise to an affirmative duty to protect.”). Several courts

have found that the State has an affirmative constitutional responsibility to children in foster care

or in out-of-home residential facilities. See Doe v. New York City Department of Social Services,

709 F.2d 782 (2d Cir.1983), cert. denied sub nom., Catholic Home Bureau v. Doe, 464 U.S. 864

(1983); Taylor, 818 F.2d at 796; Hernandez v. Hines, 159 F. Supp. 378 (N.D. Tex. 2001); Marisol

A. v. Giuliani, 929 F. Supp. 660, 661 (S.D.N.Y.1996); Wilder v. City of New York, 568 F. Supp.

1132, 1137 (E.D.N.Y.1983); Brooks v. Richardson, 478 F. Supp. 793, 795 (S.D.N.Y.1979).

Furthermore, courts have concluded that the State’s responsibilities under Youngberg and

DeShaney include both emotional and physical well-being. See, e.g., B.H. v. Johnson, 715 F. Supp.

1387, 1394 (N.D. Ill. 1989). Finally, a finding that DHHS unlawfully took property owed to the

Providers does not infringe on its ability to administer its budget. In re Ryan G., 142 N.H. 643,

646 (1998). DHHS cannot “reasonably” exercise its discretion to result in an unconstitutional

taking of Providers’ resources. Furthermore, the right to just compensation trumps any ability to

use RSA 9:19 as a shield for DHHS’ improper exercise of its discretion to expend funds.

49

In short, DHHS’ actions amount to an unconstitutional taking and the Providers must be

reimbursed for the difference between the reasonable cost of the services they provided – as defined

by their awarded rates – and the rates paid by DHHS in fiscal years 2004, 2005, and 2006.

CONCLUSION

The seven Providers started the rate appeal process almost 8 years ago. They prevailed at

the administrative level. This Court affirmed that they were entitled to rates at the levels set by the

administrative appeal panels retroactive to the beginning of the three years in question. The

Providers then went to the trial court seeking a remedy for the Department’s refusal to pay the rates

awarded by the administrative panels and affirmed by this Court. Having won at trial, the Providers

are again before this Court seeking to uphold the just remedy ordered by the trial court.

The parties agreed at trial that the discrepancy between the paid and calculated rates is

$3,553,479.55. Whether under a theory of breach of contract, breach of the covenant of good faith

and fair dealing, violation of RSA 169-B, -C, and -D and related payment laws, or unconstitutional

taking, the Department is liable for its decision to ignore its obligation to set rates that cover the

costs of the services it demands. It has to pay what it owes to the Providers.

For this Court to deny that remedy would doom these Providers, and would mean that the

right to appeal rates provided in RSA 170-G:4-a is meaningless, and that there are no checks on the

ability of DHHS to set any rate it desires in contradiction of RSA 170-G:4. This result would make

no sense. No more sense than DHHS returning millions to the general fund when its own contracts

and laws obligate it to pay higher rates to the Providers. This Court can make sense of this process

by making it clear that an agency is not above the law. It can do so by upholding the trial court’s

decision and giving the Providers the remedy they deserve.

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REQUEST FOR ORAL ARGUMENT

Appellees requests 15 minutes for oral argument before the full court, which will be

presented by Lisa Snow Wade. Appellees waive the “3 minute” rule.

Respectfully submitted,

Chase Home for Children, Child and Family Services, Hannah House, NFI North, Odyssey House, Orion House, and Pine Haven Boys Center

By their attorneys,

ORR & RENO, PA One Eagle Square P.O. Box 3550 Concord, NH 03302-3550 603-224-2381

___________________________________ Dated: March 28, 2011 Lisa Snow Wade (NH Bar #5595) Rachel Aslin Goldwasser (NH Bar #18315)

CERTIFICATE OF SERVICE

I, Lisa Snow Wade, hereby certify that two copies of the foregoing brief have been forwarded to counsel of record via U.S. Mail on this date.

___________________________________ 733880_1 Lisa Snow Wade