Opinion
NO. 2013-CA-001145-MR
04-17-2015
EDGEMONT MANOR NURSING HOME, INC.; AND HMS ENTERPRISES, LLC APPELLANTS v. COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES, DEPARTMENT FOR MEDICAID SERVICES APPELLEE
BRIEFS FOR APPELLANTS: James M. Burd Edward M. O'Brien Louisville, Kentucky BRIEF FOR APPELLEE: Ann Truitt Hunsaker Frankfort, Kentucky
NOT TO BE PUBLISHED APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 06-CI-00281
OPINION
REVERSING AND REMANDING
BEFORE: ACREE, CHIEF JUDGE; CLAYTON AND NICKELL, JUDGES. NICKELL, JUDGE: Edgemont Manor Nursing Home, Inc., ("Edgemont"), and HMS Enterprises, LLC, ("HMS"), have appealed from the Franklin Circuit Court's denial of their motion seeking payment of pre- and post-judgment interest on sums owed to them by the Cabinet for Health and Family Services, Department for Medicaid Services ("Cabinet"). Following a careful review, we reverse and remand for further proceedings.
During the time period pertinent to this appeal, Edgemont and HMS owned and operated Edgemont Manor, a licensed Kentucky nursing facility located in Cynthiana, Kentucky. The Cabinet administers the Kentucky Medical Assistance Program, which implements the Federal Medicaid Program in Kentucky. The relationship between the parties was governed by a written Medicaid Provider Agreement which, inter alia, required the Cabinet to reimburse Edgemont and HMS according to federal and state statutes and regulations. The factual and procedural history underlying this appeal dates back nearly twenty years, a complete overview of which would unnecessarily lengthen our Opinion. However, the trial court set out the pertinent facts in a brief synopsis in the order appealed from which we quote in the interest of judicial economy.
Petitioners [Edgemont and HMS] received a demand letter in October 2003 relating to an audit of a February 28, 1995 Cost Report. Petitioners challenged this demand for repayment as untimely. In March 2004, [the Cabinet] denied Petitioner's claim through the administrative appeals process. Exceptions were filed to the Hearing Officer's Findings of Fact and Conclusions of Law and Recommended Decision, and the Board affirmed the decision by Final Order on January 25, 2006. [The Cabinet] began recouping the claimed amounts from current payments notwithstanding the appeal to this Court, and recovered $65,260.23 by the time a temporary restraining order had been entered. This Court reversed the Final Order, and the decision was appealed to the Kentucky Court of Appeals. On May 18, 2012, the Court of Appeals affirmed the decision. Following the Court of Appeals decision, Petitioners
brought a motion in this Court to recover the principal, as well as pre- and post-judgment interest on the improperly recouped funds. On September 20, 2012, this Court issued an Order directing [the Cabinet] to repay the principal to Petitioners. The issue of whether Petitioners should be awarded pre- and post-judgment interest is now before this Court.
After setting forth the applicable standard of review and engaging in a brief discussion regarding sovereign immunity, the trial court turned to the issue raised by Edgemont and HMS relative to the payment of interest. In denying the requested relief, the trial court stated:
[g]enerally in the absence of a statute or regulation the courts will not award interest against the state. Ky. Const. § 231; Univ. of Louisville v. RAM Eng'g and Const., Inc., 199 S.W.3d 746, 748 (Ky. Ct. App. 2005). Petitioner (sic) cites to [Kentucky Revised Statutes (KRS)] 45A.245 for support because it allows for recovery of interest in contract cases, and Petitioner (sic) argues that the Provider Agreement it signed constitutes such a contract. However, KRS 45A applies only to the Model Procurement Code. This Medicaid Provider Agreement is not a Model Procurement Code contract, and thus KRS 45A is inapplicable. Further, there is nothing in the state Medicaid regulations that allows for recovery of interest in judicial recoupment proceedings. Regardless of the equities, in the absence of specific authority in a statute or administrative regulation to allow for recovery of interest against the state, the Court cannot award interest against the state on payments wrongfully recouped. The Petitioner's right to recoupment here is based on the statute and administrative regulations governing the Medicaid program, and there is no statute or administrative regulation that authorizes the payment of interest on the amount owed by the Commonwealth.This appeal followed.
KRS 45A.245 provides that any person, firm or corporation who has a valid written contract with the Commonwealth dated after 1974 may bring an action on such contract for its breach or enforcement in Franklin Circuit Court. The plain language of the statute specifically waives governmental or sovereign immunity for contract actions against the Commonwealth. The trial court concluded KRS 45A.245 was applicable only to contracts made pursuant to the Model Procurement Code; the Medicaid Provider Agreement at issue in this matter was not such a contract; and therefore, the Commonwealth had not waived its right to governmental or sovereign immunity. On appeal, Edgemont and HMS contend the trial court erroneously concluded the Medicaid Provider Agreement was not an enforceable contract for which immunity had been waived under KRS 45A.245. They allege the statute applies beyond the Model Procurement Code and the trial court erred in not so finding. We agree.
In the recent case of Commonwealth v. Samaritan Alliance, LLC, 439 S.W.3d 757 (Ky. App. 2014), a panel of this Court was presented with a question very similar to the one at bar, to wit, whether KRS 45A.245 was applicable to Medicaid Provider Agreements. In concluding such agreements were governed by KRS 45A.245, the panel discussed the implication of the Supreme Court of Kentucky's opinion in Commonwealth v. Kentucky Retirement Systems, 396 S.W.3d 833 (Ky. 2013), which contained extensive analysis related to the waiver of sovereign immunity for claims arising under written contracts with the Commonwealth which were outside the Model Procurement Code.
While the Supreme Court's discussion was specifically addressed to claims brought against the KERS, we conclude that it is also applicable to the claims brought by Samaritan. As in the Kentucky Retirement Systems case, the Cabinet is a statutorily created agency performing an integral function of state government. Thus, the Cabinet is entitled to the protection of sovereign immunity. However, the Cabinet has entered into a Medicaid Provider Service Contract with Samaritan. KRS 45A.245 expressly waives sovereign immunity for actions arising under contracts with the Commonwealth. In relying upon KRS 45A.245 , the Supreme Court applied the statute as a waiver of sovereign immunity in all contract actions against the Commonwealth and not only those subject to the Model Procurement Code .Samaritan Alliance, 439 S.W.3d at 761-62 (internal footnote omitted) (emphasis added).
. . . .
At oral argument, the Cabinet cited Louisville Arena Authority, Inc. v. RAM Engineering & Construction, Inc., 415 S.W.3d 671 (Ky. App. 2013), in support of its argument that KRS 45A.245 does not apply. However, in RAM Engineering, this Court held only that the statutory waiver of sovereign immunity must be read narrowly and only to claims based upon written contracts. Id., 415 S.W.3d at 681. . . .
On the strength of Southern Alliance, we are compelled to conclude the trial court's finding regarding the inapplicability of KRS 45A.245 was in error and must be reversed. Therefore, we must remand this matter for further proceedings. On remand, after considering the law, the facts and the equities, the trial court shall determine whether Edgemont and HMS are entitled to pre- and/or post-judgment interest, and if so, the rate at which such interest should accrue. While further development of the record may be necessary to assist the trial court in reaching its conclusion, we shall leave that question to the discretion of the trial court.
For the foregoing reasons, the judgment of the Franklin Circuit Court is reversed and the matter is remanded for further proceedings consistent with this Opinion.
ALL CONCUR. BRIEFS FOR APPELLANTS: James M. Burd
Edward M. O'Brien
Louisville, Kentucky
BRIEF FOR APPELLEE: Ann Truitt Hunsaker
Frankfort, Kentucky