Court Opinion

ID: 4706830
Source: CourtListenerOpinion
Date Created: 2021-07-27 14:11:06.11589+00
Date Added: 2024-06-11T08:06:40.035210
License: Public Domain

NOT FOR PUBLICATION WITHOUT THE
                               APPROVAL OF THE APPELLATE DIVISION
        This opinion shall not "constitute precedent or be binding upon any court ." Although it is posted on the
     internet, this opinion is binding only on the parties in the case and its use in other cases is limited. R. 1:36-3.

                                                        SUPERIOR COURT OF NEW JERSEY
                                                        APPELLATE DIVISION
                                                        DOCKET NO. A-1906-19

MORRIS COUNTY,

          Plaintiff-Appellant,

v.

STATE OF NEW JERSEY,
DEPARTMENT OF HUMAN
SERVICES,

     Defendant-Respondent.
_________________________

                   Argued February 23, 2021 – Decided July 27, 2021

                   Before Judges Fisher, Gilson, and Gummer.

                   On appeal from the Superior Court of New Jersey, Law
                   Division, Mercer County, Docket No. L-0684-19.

                   Dennis Driscoll argued the cause for appellant
                   (Inglesino, Webster, Wyciskala & Taylor, LLC,
                   attorneys; Lisa D. Taylor and Joseph M. Franck, of
                   counsel and on the briefs).

                   Christopher J. Riggs, Deputy Attorney General, argued
                   the cause for respondent (Gurbir S. Grewal, Attorney
                   General, attorney; Melissa H. Raksa, Assistant
                   Attorney General, of counsel; Christopher J. Riggs and
            Arundhati Mohankumar, Deputy Attorney General, on
            the brief).

PER CURIAM

      In this case concerning the redistribution of federal Medicaid funds,

plaintiff Morris County appeals orders divesting the court of jurisdiction and

transferring the matter to defendant State of New Jersey, Department of Human

Services (DHS). We affirm the aspect of the orders transferring plaintiff's claim

for review by the DHS but reverse the divestiture of jurisdiction because the

motion judge erred in not retaining jurisdiction and staying the case pending the

DHS's review.

                                        I.

      Because the case comes to us as a result of defendant's motion to dismiss,

we assume as true the facts alleged by plaintiff and give plaintiff "the benefit of

all inferences that may be drawn from those facts." Feinberg v. N.J. Dep't of

Env't Prot., 137 N.J. 126, 129 (1994); see also Baskin v. P.C. Richard & Son,

LLC, 246 N.J. 157, 171 (2021).

      Medicaid is a "joint federal-state program . . . established by Title XIX of

the Social Security Act to provide medical assistance on behalf of certain

categories of persons whose income and resources are insufficient to meet the

costs of necessary medical services." In re Hosps.' Petitions for Adjustment of

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                                        2
Rates for Reimbursement of Inpatient Servs. to Medicaid Beneficiaries, 383 N.J.

Super. 219, 227 (App. Div. 2006) (citing 42 U.S.C. § 1396, §§ 1396a to 1396v).

The Medicaid program is administered federally by the United States

Department of Health and Human Services (USDHHS) and in New Jersey by

DHS through the Division of Medical Assistance and Health Services

(DMAHS). Id. at 227-28 (citing 42 U.S.C. § 1396a(a)(5); N.J.S.A. 30:4D-4, -

5, and -7).

      Plaintiff contributes to New Jersey's share of Medicaid expenditures

pursuant to the State's approved Medicaid plan. Plaintiff also provides social

services to its residents, by the support of psychiatric services and, until the end

of 2017, the operation of a skilled nursing facility called Morris View Healthcare

Center (Morris View). Those services are funded by Medicaid monies received

from the state and federal governments and taxes assessed by plaintiff. Thus,

plaintiff is both a political subdivision that contributes to the State's share of

Medicaid expenditures and a county health-care provider.

      Following the economic downturn of 2008, Congress enacted the

American Recovery and Reinvestment Act of 2009 (ARRA), Pub. L. No. 111-

5, 123 Stat. 115 (2009). The purpose of the ARRA, among other things, was to

"stabilize State and local government budgets . . . to minimize and avoid

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reductions in essential services," "provide fiscal relief to States in a period of

economic downturn," and "protect and maintain State Medicaid programs . . .

including by helping to avert cuts to provider payment rates and benefits or

services."   Id. § 3(a)(5), § 5000(a)(1) to (a)(2).    ARRA increased federal

Medicaid assistance to the states by temporarily increasing the federal

government's share of most Medicaid expenditures, first from October 1, 2008,

to December 31, 2010 (recession-adjustment period), and then to June 30, 2011

(extension period). To be eligible for that increased assistance, states could not

require political subdivisions, such as counties, to pay a greater percentage of

the non-federal share of Medicaid expenditures during the recession-adjustment

period than had been required in the previous twelve-month period (base

period). That eligibility qualification has been called "the political subdivision

requirement." As a result of the increase in the federal share, New Jersey

received approximately $2.1 billion dollars in additional Medicaid funding.

      In July 2014, the Office of Inspector General (OIG) of the USDHHS

released a report in which it found New Jersey had not complied with the

political subdivision requirement, meaning New Jersey's political subdivisions

contributed a greater percentage of the non-federal share of Medicaid

expenditures during the recession-adjustment period than they had during the

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base period. According to the OIG, to comply, New Jersey had to redistribute

approximately $45.2 million dollars to its political subdivisions.        Of that

amount, the OIG concluded the State had to redistribute $20,883,357 for county

nursing facility expenditures, with $1,869,357 attributed to plaintiff. The OIG's

report covered only the recession-adjustment period; the OIG recommended

DHS work with the Centers for Medicare & Medicaid Services (CMS), which is

part of USDHHS, to ensure it had complied with the political subdivision

requirement during the extension period.

      New Jersey contested the OIG's findings. In a follow-up review dated

May 23, 2016, CMS upheld $37,320,359 of the OIG's recommended

redistribution amount, including all the county nursing facility redistribution

amount. CMS advised DHS that if New Jersey did not agree to perform the

redistribution, CMS would initiate disallowance of the entire amount of

enhanced funding provided to the State.

                                        II.

      In November 2018, 1 plaintiff filed a complaint in which it alleged the State

owed it nearly $22 million dollars.         First, acknowledging it had received

1
  According to plaintiff, a prior complaint it had filed in 2016 was dismissed in
2017 based on on-going communications between the State and CMS, updated

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$2,056,439.94 in redistributed funds from the State, plaintiff alleged the State

still owed it $383,654.06 out of $570,737 in funds to which plaintiff claimed it

was entitled due to the State's noncompliance with the political subdivision

requirement during the ARRA extension period. Second, plaintiff alleged the

State had issued a "recoupment schedule" in June 2017 based on a 2006 audit

related to Morris View and indicated that beginning in August 2017 the State

would begin recoupment of $1,661,594.37 from plaintiff, which, according to

plaintiff, "effectively reduces the County's Medicaid rate for 2007 through

2017." Plaintiff asserted that recoupment would impact the calculations in the

OIG report such that the State owed it at least $145,537 more than what the OIG

had found.2

calculations the State had submitted to CMS on July 12, 2016, and the
exhaustion-of-administrative-remedies doctrine.
2
  Plaintiff also made claims regarding funds allegedly due to it pursuant to its
"Enhanced Peer Grouping under the State's Medicaid Plan." In response to the
initial transfer order, defendant proposed to transfer those claims to the Office
of Administrative Law as a contested case for a fair hearing. At the end of a
subsequent case management conference, plaintiff's counsel asked for
reinstatement of claims related to ARRA, not Enhanced Peer Grouping; the
parties did not raise arguments about the Enhanced Peer Grouping in their
appellate briefs; and counsel during oral argument stated it was not at issue.
Accordingly, we do not address the Enhanced Peer Grouping claims.
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      Plaintiff pleaded claims for "account stated," "recapture" for "wrongful

detention of the County's property," conversion, and declaratory judgment as to

the amount owed to it; and demanded payment of the amount allegedly due,

"loss of use" damages, punitive damages, and attorneys' fees. Plaintiff also

demanded a trial by jury.

      Defendant moved to transfer venue to Mercer County and to dismiss the

complaint with prejudice. On March 26, 2019, defendant's motion to transfer

venue was granted. A Mercer County judge subsequently heard oral argument

on the motion to dismiss. After defense counsel had argued the case should be

dismissed because plaintiff did not have a private right of action and defendant

had sovereign immunity, the motion judge questioned the "essence of the cause

of action" asserted by plaintiff and whether administrative remedies were

available on each of plaintiff's claims. She directed plaintiff to amend the

complaint and both parties to submit additional briefing.

      Plaintiff amended its complaint, pleading conversion based on defendant's

alleged retention of funds owed to plaintiff due to defendant's noncompliance

with the political subdivision requirement during the ARRA extension period

and recoupment of funds related to the 2006 audit; breach of contract by failing

to make proper Medicaid contributions and payments pursuant to a Medicaid

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provider agreement; and breach of the implied covenant of good faith and fair

dealing by depriving plaintiff of reimbursement owed to it and causing it to

make excess contributions.3 Plaintiff again sought a declaratory judgment as to

the amount owed to it, punitive damages, "loss of use" damages, compensatory

damages, and attorneys' fees and again demanded a trial by jury.

      After hearing oral argument, the motion judge rendered her decision. Due

to "the complexity of Medicaid" and DHS's expertise, because the case involved

"County shares and State shares that are determined based upon some complex

system that's beyond the four corners of this [c]omplaint," and because she

viewed plaintiff's contract and tort claims as "an attempt to shoehorn" claims

about the State's "administration of the Medicaid Program" and ARRA "into

common-law causes of action," the motion judge found a contract or conversion

action was not "the appropriate way" to adjudicate plaintiff's claim; "rather, . . .

it's to go through the [a]gency and require the [a]gency . . . to provide . . . the

avenue for relief that is represented."      Believing "there just has to be the

application of [a]gency expertise here" and that the case "crie[d] out for

administrative remedy," the motion judge concluded "the appropriate thing to

3
   Plaintiff also pleaded violations of the Open Public Records Act, N.J.S.A.
47:1A-1 to -13, and the common law right of access but later withdrew those
claims.
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                                         8
do . . . is a transfer to the [a]gency" with a direction that it "provide . . . a decision

or an analysis . . . to the County that explains the basis for the amount of money

that [it] got." She explained "while the [a]gency is not going to . . . decide a

[c]ontract claim or a tort claim, the [a]gency will be looking to the substance of

. . . these claims in terms of the money that the County is seeking to recover,

and will . . . provide the [c]ourt with . . . its position in regard [to whether] . . .

there [are] [a]gency avenues of relief . . . ."

      The motion judge issued an order transferring plaintiff's claims to the

Commissioner of DHS "for administrative review"; retaining jurisdiction "to

ensure that a viable administrative mechanism exists to address" plaintiff's

claims; and directing DHS to "review the substance of [p]laintiff's claims in

terms of the additional moneys that [plaintiff] alleges is due to it by the State"

and to provide "either an explanation of its rulings regarding the moneys claimed

by the County, or a description of the administrative process [DHS] will follow

in reviewing the County's claims," its calculations regarding ARRA fund

distributions, and an explanation regarding how it intended to address plaintiff's

assertion the 2006 audit recoupment would impact the amount allegedly due to

plaintiff. The motion judge scheduled a case management conference, giving

plaintiff an opportunity to raise concerns about "the viability of administrative

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                                            9
remedies" proposed by DHS and to ask her to restore counts of the amended

complaint.

      In a subsequent letter, defense counsel stated DHS would "afford

[plaintiff] with administrative processes to pursue its claims ," by referring

plaintiff's ARRA claim to DMAHS for a final agency decision.             Plaintiff

objected to the proposed administrative process and asked the motion judge to

restore the amended complaint. Plaintiff argued defendant had no authority to

support the existence of any available administrative process but instead was

"clearly attempting to create an arbitrary and unreasonable artificial

administrative process on an ad hoc basis."

      The motion judge conducted a case management conference during which

she heard the parties' arguments concerning the proposed administrative

process. Not dissuaded from her original conclusion that "the matter is an

administrative one that needs to be reviewed by the [a]gency," the motion judge

found DHS had "the flexibility to create an administrative remedy" and stated

she was "comfortable that the State has offered [plaintiff] a mechanism by which

[it] should be able to get an answer."        She subsequently issued an order

reaffirming the transfer of the complaint and divesting the court of jurisdiction.

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                                       10
                                      III.

      Plaintiff appeals, contending the court erred by misapplying the motion-

to-dismiss standard by failing to give all reasonable inferences to plaintiff and

by transferring the case "without dispositive authority"; by applying the

primary-jurisdiction    doctrine;   and      by   applying   the   exhaustion-of-

administrative-remedies doctrine.

      Defendant argues the motion judge properly transferred the case because

regardless of how plaintiff styled its claims, it was seeking relief from DHS's

allocation of Medicaid funds – a claim best suited to be addressed by the state

agency that administers the Medicaid program. Defendant also contends the

transfer was proper because plaintiff failed to exhaust its administrative

remedies and the motion judge correctly found DHS had flexibility under its

enabling statute to respond to a Medicaid allocation dispute and create an

administrative remedy, even though explicit regulations for an administrative

remedy did not exist.

                                       A.

      We review de novo a trial court's legal conclusions. Clark v. Nenna, 465

N.J. Super. 505, 511 (App. Div. 2020). Thus, although a trial court's initial

decision to invoke primary jurisdiction may be discretionary in nature, Est. of

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                                      11
Kotsovska v. Liebman, 221 N.J. 568, 588 (2015), we owe no deference to a trial

court's determination of legal questions concerning whether the court or another

entity has primary jurisdiction, Muise v. GPU, Inc., 332 N.J. Super. 140, 157

(App. Div. 2000).

      The primary-jurisdiction doctrine applies "when a case is properly filed in

the Superior Court but the court declines original jurisdiction, referring specific

issues to the appropriate administrative body." Magic Petroleum Corp. v. Exxon

Mobil Corp., 218 N.J. 390, 405 (2014); see also Kotsovska, 221 N.J. at 588. As

our Supreme Court acknowledged, "no formula exists to evaluate the

applicability of primary jurisdiction." Id. at 407. Courts, nevertheless, have

been guided by the following factors:

            1) whether the matter at issue is within the conventional
            experience of judges; 2) whether the matter is
            peculiarly within the agency's discretion, or requires
            agency expertise; 3) whether inconsistent rulings might
            pose the danger of disrupting the statutory scheme; and
            4) whether prior application has been made to the
            agency.

            [Boldt v. Correspondence Mgmt., Inc., 320 N.J. Super.
            74, 85 (App. Div. 1999).]

See also Kotsovska, 221 N.J. at 588. The primary-jurisdiction doctrine applies

when "disputed factual issues should be evaluated by the agency because of its

expertise, but legal issues should be left to the court to decide."         Magic

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                                        12
Petroleum, 218 N.J. at 406; see also Boss v. Rockland Elec. Co., 95 N.J. 33, 41

(1983) (finding "when the determination of the legal issue must be preceded by

'the taking of the necessary evidence and the making of the necessary factual

findings,' it is best done by the administrative agency specifically equipped to

inquire into the facts") (quoting Roadway Express, Inc. v. Kingsley, 37 N.J. 136,

140 (1962)).

      The exhaustion-of-administrative-remedies doctrine is "designed to allow

administrative bodies to perform their statutory functions in an orderly manner

without preliminary interference from the courts." Brunetti v. Borough of New

Milford, 68 N.J. 576, 588 (1975); see also In re Request to Modify Prison

Sentences, 242 N.J. 357, 379 (2020). The exhaustion doctrine is applied:

            when it will ensure a claim will initially be heard by a
            body possessing expertise, when it allows for the
            creation of a factual record that will promote for
            meaningful appellate review, or when it fosters a
            potential for terminating the controversy, since an
            agency decision might satisfy the parties and obviate
            resort to the courts.

            [Rosenstein v. State, Dep't of Treasury, Div. of
            Pensions & Benefits, 438 N.J. Super. 491, 498 (App.
            Div. 2014).]

A court considering whether to apply the doctrine should consider whether its

application would be "'futile' or might result in irreparable harm, or whether 'an

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                                       13
overriding public interest calls for a prompt judicial decision.'" Id. at 498-99

(quoting Garrow v. Elizabeth Gen. Hosp. & Dispensary, 79 N.J. 549, 561

(1979)). Futility includes when administrative remedies are inadequate or non-

existent. Warrenville Plaza, Inc. v. Warren Twp. Sewerage Auth., 230 N.J.

Super. 461, 465 (App. Div. 1989) (finding exhaustion doctrine "rests on the

premise that such remedies are 'certainly available and completely adequate to

right the wrong complained of'") (quoting Abbott v. Burke, 195 N.J. Super. 59,

73 (App. Div. 1984), rev'd on other grounds, 100 N.J. 269 (1985)).

      The primary-jurisdiction and exhaustion doctrines are "doctrinally-

related." Boss, 95 N.J. at 40; see also Muise, 332 N.J. Super. at 158. Both

further the goals of assuring controversies are resolved in appropriate forums

and maintaining proper relationships between administrative agencies and

courts. Ibid. "In primary jurisdiction, 'the case is properly before the court, but

agency expertise is required to resolve the questions present'; by contrast, when

a court relies on exhaustion, it 'is saying that the case ought to have been brought

before the administrative agency in the first place.'" Muise, 332 N.J. Super. at

159 (quoting Boldt, 320 N.J. Super. at 83-84); see also Curzi v. Raub, 415 N.J.

Super. 1, 20 (App. Div. 2010).

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      The procedure a trial court should follow under either doctrine is clear.

As we recently stated in Estate of Burns v. Care One at Stanwick, LLC, ___ N.J.

Super. ____, ____ (App. Div. 2021) (slip op. at 21),

            When the claim itself falls within the agency's
            exclusive jurisdiction, it is subject to dismissal because
            of the failure to exhaust administrative remedies. But,
            when a court has jurisdiction over the claim and a
            pivotal aspect presents a question falling within an
            agency's expertise, a court will retain jurisdiction, stay
            the action, and allow for the agency's determination of
            that aspect.

See also Muise, 332 N.J. Super. at 161 (finding "[w]hen a claim presents some

issues that are within an agency's special expertise and others which are not, the

proper course is for the court to refer the former to the agency, and then to apply

the agency's findings or conclusions to its determination of the remaining

issues").   Thus, a court applying the exhaustion doctrine does not retain

jurisdiction; a court applying the primary-jurisdiction doctrine "retains

jurisdiction but defers action until the agency has reviewed the case and

employed its expertise." Magic Petroleum, 218 N.J. at 405; see, e.g., Boss, 95

N.J. at 41-42 (Court remanded, instructing trial court to refer issue to agency for

fact finding and then to apply fact finding to legal issues to be resolved by trial

court); Boldt, 320 N.J. Super. at 87-88 (finding factual issue should be referred

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                                       15
to agency with trial court applying agency's findings to the plaintiff's legal

claims).

                                        IV.

      In an apparent attempt to find a creative solution to the complex and

nuanced case before her, the motion judge, without specifically referencing

either doctrine, conflated elements of the primary-jurisdiction and exhaustion

doctrines to transfer and effectively dismiss the case.             Although she

appropriately transferred the case to the DHS for factual findings and

calculations within its expertise regarding the State's compliance with ARRA's

political subdivision requirement, she erred in not retaining jurisdiction so that

the court ultimately could apply those factual findings to plaintiff's legal claims.

      In preparing its report, the OIG considered only the ARRA recession-

adjustment period. As alleged by plaintiff, the OIG did not consider the impact,

if any, the recoupment based on the 2006 audit may have had on its calculations

regarding the recession-adjustment period. The OIG expressly did not make any

calculations regarding the extension period of ARRA; instead, it recommended

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                                        16
DHS work with CMS to ensure the State had complied with ARRA's political

subdivision requirement during the extension period.4

      Plaintiff's remaining causes of action are premised directly on a

determination of whether the 2006 audit recoupment alters the OIG's

calculations regarding the State's compliance with the political subdivision

requirement during the recession-adjustment period and on the preparation of

calculations regarding whether the State complied with the political subdivision

requirement during the extension period. As the motion judge recognized, to

adjudicate plaintiff's common-law causes of action, the court would have to "get

into calculations . . . that the Federal Government made . . . in the first instance,

and then, apparently, subsequent to the materials [provided] to me . . . in regard

to the extension period." We can understand why the motion judge believed she

was being asked "to step in almost to the role of the Federal Government" to

determine the State's compliance with the political subdivision requirement and

viewed those necessary calculations as outside the expertise of the court and

4
  Plaintiff did not make any allegations in its amended complaint regarding the
results, if any, of that collaboration, perhaps because it was not provided with
any information about it. Thus, for example, we do not know if the State and
CMS reached agreement on calculations and redistribution amounts for the
extension period or whether any agreed-upon figures factored into the State's
redistribution of $2,056,439.94 to plaintiff.

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                                        17
within the expertise of the DMAHS. As "the 'single State agency' responsible

for administering New Jersey's Medicaid program," DMAHS's expertise is clear.

In re A.N., 430 N.J. Super. 235, 243 (App. Div. 2013) (quoting N.J.S.A. 30:4D-

5); see also N.J.A.C. 10:49-1.1.

      In transferring the case and divesting the court of jurisdiction, the motion

judge appeared to be applying the exhaustion doctrine.         That was an error

because no administrative remedies were available until after the motion judge

transferred the case and ordered defendant to review plaintiff's claims regarding

moneys allegedly due to it and to provide either an explanation of its rulings or

a description of the administrative process it would follow in reviewing

plaintiff's claims. A court can't transfer and dismiss a case for failure to exhaust

administrative remedies when the remedies don't exist. See Brunetti, 68 N.J. at

589 n.12; Warrenville Plaza, 230 N.J. Super. at 465.

      The circumstances of this case are more closely aligned with the primary-

jurisdiction doctrine.    Calculations and factual determinations regarding

whether the State complied with ARRA's political subdivision requirement

during the extension period and whether and how the 2006 audit recoupment

impacts the OIG's prior calculations and findings concerning the State's

compliance with the political subdivision requirement during the recession-

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adjustment period is not within the "conventional experience" of judges and falls

more particularly in DMAHS's expertise. See Kotsovska, 221 N.J. at 588.

Given that plaintiff's claims involve the potential redistribution of a portion of

the $2.1 billion dollars in additional Medicaid funding the State received as a

result of ARRA, the potential impact of inconsistent rulings is a concern. See

id. A "pivotal aspect" of plaintiff's claims is the underlying calculations and

factual findings regarding the State's compliance with the political subdivision

requirement during the extension period and the possible impact of the 2006

audit recoupment on the OIG's prior calculations. See Est. of Burns, ___ N.J.

Super. at ____ (slip op. at 21). Accordingly, under the primary-jurisdiction

doctrine, we see no error in the transfer of the case to the appropriate agency for

a determination of those particular factual issues.

      The motion judge erred in divesting the court's jurisdiction.              By

transferring for an evaluation of the underlying factual issues and then

effectively dismissing the case, the motion judge closed the avenue to resolution

of the "legal issues . . . left to the court to decide." Magic Petroleum, 218 N.J.

at 406. And, consistent with the primary-jurisdiction doctrine, resolution of

those legal issues ultimately is for the court.

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      Affirmed in part; reversed in part. We remand for entry of an order that

reinstates the amended complaint and the trial court's jurisdiction but also

transfers the matter to DMAHS for proceedings consistent with the opinion and

stays the trial court proceedings until the DMAHS renders the findings required

for a complete disposition of plaintiff's amended complaint. We do not retain

jurisdiction.

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