Title: Berlin Convalescent Center v. Stoneman

State: vermont

Issuer: Vermont Supreme Court

Document:

NOTICE:  This opinion is subject to motions for reargument under V.R.A.P.
 40 as well as formal revision before publication in the Vermont Reports.
 Readers are requested to notify the Reporter of Decisions, Vermont Supreme
 Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in
 order that corrections may be made before this opinion goes to press.


                            No. 91-127


 Berlin Convalescent Center, Inc.             Supreme Court
 and American Health Care, Inc.
                                              On Appeal from
      v.                                      Washington Superior Court

 Kent Stoneman, Director,                     March Term, 1992
 Division of Rate Setting, et al.


 Alan W. Cheever, J.

 Martin K. Miller and Patricia L. Rickard of Miller, Eggleston &
   Rosenberg, Ltd., Burlington, for plaintiffs-appellants

 Jeffrey L. Amestoy, Attorney General, Montpelier, and Marjorie
   Power, Special Assistant Attorney General, Waterbury, for
   defendants-appellees


 PRESENT:  Allen, C.J., Gibson, Dooley and Johnson, JJ.


      DOOLEY, J.   This case involves a dispute over nursing home rates.
 Plaintiffs, Berlin Convalescent Center, Inc., and American Health Care,
 Inc., both owners and operators of nursing homes, appealed to superior court
 a rate decision made by defendants, agencies and officials of the State of
 Vermont.  The court granted defendants' summary judgment motion because it
 concluded that earlier decisions in the ongoing rate dispute between
 plaintiffs and defendants constituted a res judicata bar to plaintiffs'
 claims.  On appeal, plaintiffs argue that res judicata does not apply and
 that summary judgment was improper.  We affirm.
      A history of the events in this proceeding is necessary.  In June of
 1987, defendants determined that daily rates payable to nursing homes for
 care of medicaid patients would increase by 2.6% for fiscal year 1988 (July
 1, 1987 through June 30, 1988) over those payable in the prior year.
 Alleging that the increase was insufficient to meet legal requirements,
 plaintiffs appealed the decision to the Washington Superior Court pursuant
 to 33 V.S.A. { 195(a)(2), now recodified as 33 V.S.A. { 909(a)(2).  They
 claimed that the rates were inadequate to cover the costs that had to be
 incurred by a nursing home operated in accordance with regulatory
 standards.
      After a hearing on the merits, the superior court issued a decision on
 May 5, 1989 agreeing with plaintiffs in part (the merits decision).  In
 reaching its decision, the court concluded that the appropriate standard of
 review required it to rely primarily on the record made in the
 administrative agency and that it would not overturn the administrative
 decision absent a finding of abuse of discretion.  Nevertheless, the court
 found that the rate increase was legally inadequate for five reasons:
         1.  The increase was based on national data about the
         cost of running an efficient and economical nursing
         home, and thus failed to accurately reflect Vermont's
         particular economic conditions.

         2.  After the prospective inflation rate was selected,
         it was reduced because rates selected in the past proved
         to be too high.  There was no economic basis for that
         decision.

         3.  The error itemized in 2. above was magnified by the
         use of a "half year inflation factor."

         4.  The rate was improperly reduced to offset a separate
         increase in medicaid rates for nursing homes voted by
         the Legislature to take effect January 1, 1988.

         5.  The base rate did not adequately account for
         increased staffing requirements resulting from new
         health and safety standards.

 Based on these deficiencies, the court found defendants' action to be
 unreasonable, clearly erroneous and an abuse of discretion.  It reversed and
 remanded the rate "for recalculation as to these petitioners."  Neither
 party appealed the merits decision. (FN1)
      In August of 1989, plaintiffs moved for enforcement of the superior
 court's merits decision and for contempt, alleging that defendants had
 failed to recalculate the rate increase.  On October 24, 1989, defendants
 filed a revised rate decision establishing a 3.9% increase for FY 1988.  On
 November 22, 1989, plaintiffs filed a separate appeal of those rates.  On
 January 10, 1990, they renewed their motion for enforcement and contempt
 alleging that the new rates failed to comply with the merits decision. On
 March 28, 1990, the superior court took up plaintiffs' motions for
 enforcement and contempt.  The record for that hearing consisted of
 communications between plaintiffs and defendants in the recalculation
 process and two affidavits submitted by defendants to describe how the
 recalculation was accomplished.  Based on that record, the court concluded
 that defendants had cured each of the five deficiencies found in the merits
 decision and that the new rate increase decision complied with the merits
 order, assuming that defendants did what the affidavits indicated they had
 done (the enforcement decision).  Because plaintiffs alleged that
 defendants did not use the methods they claimed, the court gave plaintiffs
 an opportunity to show evidence of this, emphasizing that, "they must
 substantiate their allegations with evidence of non-compliance in the method
 of recalculation and not just attempt to re-try the case because they are
 disappointed that the recalculated inflation factor does not equal 7.8
 percent [the amount they sought]."
      In response to the enforcement decision, plaintiffs filed an affidavit
 of the president of the plaintiff corporations, stating that the actual
 costs of operation of their nursing homes was about seven dollars per
 patient per day higher than the recalculated reimbursement rate.  Plaintiffs
 also filed an affidavit of their accountant, stating that the Director of
 the Vermont Division of Rate Setting had told him that the Director would be
 retired by the time the rates were finally set.  After evaluating these
 affidavits, the court denied the motion to enforce and for contempt,
 concluding that plaintiffs were again arguing only that they did not obtain
 the rates they wanted and were "attempting to retry the entire case on the
 merits" (the supplemental enforcement decision).  Neither party appealed the
 enforcement decisions.
      The action then shifted to the independent appeal of the rate decision
 filed by plaintiffs in November of 1989.  Defendants moved for summary
 judgment, claiming that all issues had been resolved in the earlier
 enforcement action.  The court agreed and dismissed the appeal (the summary
 judgment decision).  Plaintiffs appeal from this decision.
      The doctrine of res judicata, also known as claim preclusion, bars the
 litigation of a claim or defense if there exists a final judgment in former
 litigation in which the "parties, subject matter and causes of action are
 identical or substantially identical."  Berisha v. Hardy, 144 Vt. 136, 138,