vs.
Case No. 17-3598
Respondent.
Pursuant to notice, a formal hearing was held in this case before W. David Watkins, a duly designated Administrative Law Judge of the Division of Administrative Hearings, on October 18, 2017, in Tallahassee, Florida.
For Petitioner: Richard A. Feldman, Esquire
Richard A. Feldman Attorney at Law
D. Carlton Enfinger, Esquire
The issue is whether the Agency for Health Care Administration (AHCA) properly denied Crestwood Nursing Center, Inc.’s (Crestwood), request for a 60-day extension of the
validity period of its certificate of need (CON) No. 10358. A corollary issue raised by Crestwood is whether it was “induced and lulled” into relying on the alleged procedures as set forth in AHCA’s September 16, 2016, letter, and thus whether the theory of equitable estoppel applies. Finally, Crestwood alleges that AHCA acted arbitrarily and capriciously in denying its extension request.
Crestwood filed a written request dated April 27, 2017, with AHCA (extension request), seeking a 60-day extension of the validity period of its CON No. 10358. AHCA denied Crestwood’s request in writing dated May 11, 2017.
Thereafter, Crestwood timely filed a “Petition for Appeal” (Petition) challenging AHCA’s denial of Crestwood’s extension request. The Petition was referred to the Division of Administrative Hearings (DOAH) on June 21, 2017, and assigned DOAH Case No. 17-3598. By Order dated July 27, 2017, the final hearing was scheduled for October 18, 2017, in Tallahassee, Florida. Counsel for Petitioner requested, and was granted, leave to appear at the hearing telephonically.
The final hearing convened as scheduled. At hearing, Crestwood presented no live or preserved witness testimony. Crestwood offered its Exhibits 1 through 7, all of which were received into evidence.
AHCA presented the testimony of Marisol Fitch, who was accepted without objection as an expert in the CON program administration and health care planning. AHCA offered its Exhibits 6 through 8, which were received into evidence.
A court reporter was present at hearing, and AHCA ordered a copy of the Transcript, which was filed on October 31, 2017.
Thereafter, the parties submitted proposed recommended orders, both of which have been carefully considered in the preparation of this Recommended Order.
Unless otherwise noted, all statutory references are to the 2017 version of the Florida Statutes.
AHCA is responsible for administering the CON program pursuant to the Health Facility and Services Development Act, codified in sections 408.031 through 408.045, Florida Statutes.
Crestwood is a licensed nursing home located in Putnam County, AHCA District 3, Subdistrict 3.
Following a comparative, competitive “batch cycle” review, AHCA preliminarily approved Crestwood’s proposal to add 29 community nursing home beds to Crestwood Nursing Center. This preliminary approval was not timely challenged, and, therefore, the preliminary approval became final agency action by operation of law.
On September 16, 2015, AHCA sent Richard Feldman, the authorized representative for Crestwood, a letter which conveyed CON No. 10358, authorizing Crestwood to add 29 community nursing home beds to Crestwood Nursing Center. The final paragraph of the letter stated:
If there is any change in the project scope or cost, which would require certificate of need review, you are to notify this office immediately.
Pursuant to section 408.040(2)(a), a CON terminates 18 months after the date of issuance. Accordingly, after its issuance on September 15, 2015, CON No. 10358 carried a termination date of March 14, 2017.
Following the initial issuance of the CON, Crestwood requested an extension of the CON validity period pursuant to Florida Administrative Code Rule 59C-1.018(3). That request was granted, and the validity period of the CON was extended to
May 13, 2017.
On April 27, 2017, Crestwood sent AHCA a letter requesting a second 60-day extension of the termination date of CON No. 10358. In the letter, Crestwood explained that the permit to proceed with demolition, as required as part of its project, was ready to be issued by the local building department, but when Crestwood contacted its selected contractor to secure the permit, the contractor told Crestwood that it was
too busy to undertake the work. Accordingly, Crestwood sought additional demolition bids, all of which were five times greater than the original bid that Crestwood used to estimate the original project cost. This increased bid resulted in a doubling of the anticipated total project cost. Finally, Crestwood asserted the following justification for the requested extension:
We now must secure many additional project bids in all phases of the work in order to determine if the total financial project cost warrants going forward with the project.
Crestwood respectfully requests a 60-day extension to begin the work on its CON project because of the need to see if it can secure project cost bids that will make the additional beds financially feasible.
On May 11, 2017, ACHA responded to Crestwood’s extension request. AHCA determined that:
Good cause has not been demonstrated to merit approval of your request. Pursuant to section 408.040(2)(c), Florida Statutes and Rule 59C-1.018(3), Florida Administrative Code, your request is denied.
AHCA informed Crestwood of its right to appeal its decision denying the extension request. Thereafter, Crestwood timely appealed the decision by filing its Petition on May 31, 2017.
Crestwood’s Arguments
Crestwood’s Petition asserts that AHCA’s denial of Crestwood’s extension request was:
Arbitrary, capricious and not in accordance with law and/or the Agency’s stated required procedures; specifically, Petitioner asserts that on or about September 16, 2015, the Agency stated in a letter . . . to Petitioner that, “If there is any change in the project scope or cost, which would require certificate of need review, you are to notify this office immediately.” Petitioner notified the Agency of its unexpected cost increase in its request letter of April 27, 2017 for an extension of the termination date of its CON.
Crestwood contends that AHCA failed to follow its stated procedure as set forth in its letter of September 16, 2015, in a manner that was arbitrary and capricious. Crestwood further contends that it was “induced and lulled” into relying on the alleged procedures as set forth in the letter. Crestwood also alleged that it “never received any communication from the Agency regarding a review of its CON based upon notice duly given by Petitioner to the Agency of a cost change.”
Stated somewhat differently, Crestwood’s position is:
[t]hat the Agency expanded the relevant statute and rule requirements in its letter of September 26, 2015 [sic], by requiring Crestwood to immediately notify the Agency of any cost increase so there would then be a CON review process. Crestwood did timely notify the Agency of a cost increase and Crestwood further contends that any meaningful CON review would necessarily
require Crestwood’s involvement since the actual cost increase could only be put forth by Crestwood; however the Agency never notified Crestwood of any CON review, and that the Agency arbitrarily and capaciously [sic] denied its request for an extension without adhering to its own stated requirements and procedures.
(Pre-hearing Stipulation, p. 2). Applicable Statutes and Rules
Section 408.040, titled “Conditions and monitoring,” governs the validity periods for CONs issued by AHCA and sets forth the mechanism for requesting and receiving CON validity period extensions under limited circumstances. Specifically, section 408.040(2)(c) provides:
(c) The certificate-of-need validity period for a project shall be extended by the agency, to the extent that the applicant demonstrates to the satisfaction of the agency that good-faith commencement of the project is being delayed by litigation or by governmental action or inaction with respect to regulations or permitting precluding commencement of the project.
As authorized by statute, AHCA has adopted rule 59C-
1.018 to operationalize the above statutory provision. That rule provides, in pertinent part:
(3) Extension of Validity Period.
(a) Extensions of up to 60 calendar days per each request may be requested by a Certificate of Need holder who is approaching the end of the 18-month validity period. The holder must submit a written request to the Agency for approval at least
15 calendar days before the Certificate of Need terminates. The filing of a request does not extend the validity period of a Certificate of Need. Failure to timely file is a waiver of the right to request an extension. This request for an extension must demonstrate that good faith commencement of the project is being delayed by litigation or by governmental action or inaction with respect to regulations or permitting which precludes commencement on the project. The request must provide the Agency a detailed explanation of the problem and a plan of action to be undertaken by the holder to resolve the problem within the time frame requested.
Land zoning issues will be considered for extension of the Certificate of Need validity period beyond the 18 months, if the Certificate of Need holder can demonstrate that action has been initiated to obtain proper zoning for the proposed site for the facility, and that such action was timely with respect to the requirements for obtaining proper zoning.
Untimely filing of submission of plans and requests for local and state permits, based on the processing time required by the state and local governments for such plans and permits, will not be considered as justification for an extension beyond the
18-month period.
Merits of the Extension Request
Crestwood’s extension request did not allege litigation as the basis for a delay in the commencement of the project. Nor did the extension request allege government action or inaction as the basis for any delay or need for the extension. These facts are conceded by Crestwood and
acknowledged by Crestwood in the parties’ Pre-hearing Stipulation.
Rather, the extension request stated that the permit necessary to proceed with demolition “was ready to be issued,” but that Crestwood needed to secure a demolition contractor in order to secure the permit. Accordingly, it is clear that the delay in commencement of the project was related to Crestwood’s procurement of contractors to perform the work necessary to implement CON No. 10358.
At hearing, Crestwood presented no testimony or other evidence that it is entitled to an extension of its CON under section 408.040(2)(c), or rule 59C-1.018(3).
Crestwood’s Equitable Estoppel Theory
Crestwood does not maintain that AHCA misinterpreted section 408.040, or rule 59C-1.018. As noted, Crestwood conceded that its extension request did not meet the requirements for obtaining an extension under these provisions. Instead, Crestwood’s argument relies on what is essentially an equitable estoppel theory. That is, while Crestwood did not satisfy the applicable requirements for obtaining an extension, it should receive one regardless, because it understood that its submission would trigger an independent cost-change-related review by AHCA, in effect staying both disposition of the extension request and termination of the CON.
Crestwood’s equitable estoppel theory hinges on the September 16, 2015, cover letter from AHCA to Crestwood conveying CON No. 10358. However, the only statement that Crestwood cites as the basis for its theory is the last sentence of the letter: “If there is any change in the project scope or cost, which would require certificate of need review, you are to notify this office immediately.” Crestwood admits that this one sentence is the sole AHCA “representation” upon which it claims it relied. No other AHCA statements have been identified or alleged.
Based upon the single sentence cited above, Crestwood asserts that its submission of an extension request, predicated on loss of a contractor and attempts to secure a replacement, would trigger a separate cost-change-related CON “review” of unspecified duration and scope, but which would include Crestwood’s involvement.
It is undisputed that Crestwood submitted a single document, to wit, an extension request dated April 27, 2017, and both parties agree that AHCA reviewed that document and the information contained therein. There was nothing else for AHCA to review. To the extent that Crestwood expected AHCA’s review to proceed differently, this was an unfounded assumption not supported by any AHCA statement cited by Crestwood. As
explained in the cross-examination of AHCA’s representative, Marisol Fitch:
Q. What is the purpose of immediate notification of a cost increase?
A. So that we can make a determination whether the project scope has changed, and therefore whether you would need to come in for an additional Certificate of Need; or whether we just need to ask you to submit a modification in order to change the face of your CON; particularly, project costs and/or gross square footage that is necessary for Office of Plans and Construction review, and eventually licensure of the beds.
Q. You never did any of that with Crestwood, did you?
A. I didn't receive a modification request, nor was there a specific project cost increase submitted to the Agency with which I could look at increasing a particular number on the face of the Certificate of Need.
Q. Do you consider a notice of cost increase a notice for a modification?
A. That's the purpose of a cost increase, because it is cited on the face of the Certificate of Need, and so to change that, you would be changing the face of your Certificate of Need, and therefore modifying the Certificate of Need.
Q. And your letter of denial mentioned none of that, did it?
A. Because an extension request has nothing to do with that.
Q. Right. You took the position that that requirement was not important.
A. In terms of an extension request, there are two prongs with which I can approve an extension request: governmental action/inaction, or litigation.
(Final hearing Transcript, p. 42-43).
There is no record evidence to suggest that AHCA misled or “lulled” Crestwood into believing that notification of a change in project scope or cost would entitle it to an extension of its CON. Even if Crestwood believed it was entitled to a separate CON review based on a possible cost change cited within its extension request, there is no basis in fact or law for Crestwood to have assumed that presenting such information would itself entitle Crestwood to an extension of its CON. As noted, this would represent a departure from the governing authority.
Crestwood failed to present any evidence of actual, let alone reasonable, reliance on an AHCA representation. No sworn testimony was offered by Crestwood as to detrimental reliance on any AHCA statement, nor do any of Crestwood’s admitted exhibits support that contention.
Finally, Crestwood’s argument that AHCA “expanded” the applicable statute and rule governing review of extension requests is without merit, and unsupported by record evidence. AHCA has no authority to “enlarge” or “expand” a statute or promulgated rule, and it has not done so here. AHCA followed
applicable law in denying the extension request, since there was no factual basis for granting the request. Indeed, Crestwood concedes that AHCA’s denial was in accordance with Florida law.
AHCA’s September 16, 2015, letter and the statements contained therein also did not exceed existing rule and statute. AHCA demonstrated in its case-in-chief that the language of this letter was in accordance with section 408.040, and the applicable AHCA rules.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction over the parties to and the subject matter of this proceeding. §§ 120.569 & 120.57(1), Fla. Stat. (2017).
An agency is given broad discretion and is entitled to great deference when interpreting its governing statutes and promulgated rules. Bd. of Podiatric Med. v. Fla. Med. Ass’n, 779 So. 2d 658, 660 (Fla. 1st DCA 2001); Miles v. Fla. A & M
Univ., 813 So. 2d 242, 245 (Fla. 1st DCA 2002); Verizon Fla.,
Inc. v. Jacobs, 810 So. 2d 906, 908 (Fla. 2002).
Findings of fact shall be based upon a preponderance of the evidence, except in penal or licensure disciplinary proceedings or except as otherwise provided by statute, and shall be based exclusively on the evidence of record and on matters officially recognized. § 120.57(1)(j), Fla. Stat.
Here the evidence of record fails to demonstrate any basis for granting Crestwood an extension of the validity period of CON No. 10358. AHCA may extend the validity period of a CON when the CON holder demonstrates that commencement of the project is being delayed by litigation or by governmental action or inaction with respect to regulations or permitting precluding commencement of the project. § 408.040(2)(c), Fla. Stat.
“The general rule is that, apart from statute, the burden of proof is on the party asserting the affirmative of an issue before an administrative tribunal.” Young v. Dep’t of
Cmty. Affairs, 625 So. 2d 831, 833 (Fla. 1993); see also Beshore v. Dep’t of Fin. Servs., 928 So. 2d 411 (Fla. 1st DCA 2006);
Fla. Dep’t of Transp. v. J.W.C. Co., Inc., 396 So. 2d 778 (Fla. 1st DCA 1981); Balino v. Dep’t of HRS, 348 So. 2d 349 (Fla. 1st
DCA 1977).
Crestwood, as the party asserting the affirmative of an issue, carries the burden of demonstrating its entitlement to its requested relief. Crestwood asserts entitlement to an extension of its CON under an estoppel theory of inducement and reliance, while at the same time conceding that it failed to meet the applicable statutory and rule requirements for obtaining an extension.
A party raising estoppel bears the burden of proving its elements, by clear and convincing evidence. Watson Clinic,
LLP v. Verzosa, 816 So. 2d 832, 834 (Fla. 2d DCA 2002); see also
Goodwin v. Blu Murray Ins. Ag., Inc., 939 So. 2d 1098, 1103 (Fla. 5th DCA 2006).
“Equitable estoppel is based on principles of fair play and essential justice and arises when one party lulls another party into a disadvantageous legal position.” Major League Baseball v. Morsani, 790 So. 2d 1071, 1076 (Fla. 2001).
The party relying on the doctrine of equitable estoppel must show that (1) the opposing party represented a material fact contrary to its later position, (2) the party asserting the doctrine relied on the opposing party’s earlier representation, and (3) the party asserting the doctrine changed its position to its detriment due to the opposing party’s representation and its reliance thereon. Riverwood Nursing Ctr., LLC v. Gilroy, 219
So. 3d 996, 999 (Fla. 1st DCA 2017).
Equitable estoppel must be applied with great caution.
Watson Clinic, 816 So. 2d at 834; see also Rinker Materials
Corp. v. Palmer First Nat’l Bank & Trust Co., 361 So. 2d 156,
159 (Fla. 1978)(“We hold that a party may successfully maintain a suit under the theory of equitable estoppel only where there is proof of fraud, misrepresentation, or other affirmative deception.”); Lennar Homes, Inc. v. Gabb Constr. Servs., Inc., 654 So. 2d 649, 651 (Fla. 3d DCA 1995)(“We note that the doctrine of estoppel is an equitable doctrine which is applied
only where to refuse its application would be virtually to sanction the perpetration of a fraud.”)(quoting Brickell Bay Club Condo. Ass’n v. Hernstadt, 512 So. 2d 994, 996 (Fla. 3d DCA
1987)).
Moreover, “[a]s a general rule, equitable estoppel will be applied against the state only in rare instances and under exceptional circumstances.” State Dep’t of Rev. v.
Anderson, 403 So. 2d 397 (Fla. 1981).
Estoppel is inapplicable under the facts adduced in this case. Crestwood failed to prove, or even offer, evidence of any of the elements of estoppel. While Crestwood alleged the occurrence of “inducement” and “reliance” in its unsworn argument at hearing, it failed to offer any evidence or testimony describing a factual misrepresentation by AHCA, Crestwood’s reliance on such factual misrepresentation, or how Crestwood changed its position to its detriment based upon a factual misrepresentation. Nor is there any evidence of record indicative of any fraud or affirmative deception on the part of AHCA, nor the presence of any exceptional factors or circumstances that would warrant application of the doctrine of equitable estoppel in this case.
The AHCA action at issue is a denial of Crestwood’s request for a 60-day extension. The relevant consideration is AHCA’s application of section 408.040 and rule 59C-1.018 in
denying that request. AHCA’s denial was not based on the September 16, 2015, letter or Crestwood’s notification or non- notification of a “cost increase.”
Submission of an extension request, including an extension request that contains information related to a possible change in the anticipated project cost, does not automatically extend the life of the CON, nor does it stay or toll the termination date of the CON. The plain language of rule 59C-1.018(3)(a) confirms this:
Extensions of up to 60 calendar days per each request may be requested by a Certificate of Need holder who is approaching the end of the 18-month validity period. The holder must submit a written request to the Agency for approval at least
15 calendar days before the Certificate of Need terminates. The filing of a request does not extend the validity period of a Certificate of Need.
(Emphasis added).
AHCA was without authority to grant Crestwood’s extension request under Florida law. AHCA’s review and disposition of requests to extend the validity period of a CON are governed by statute. See § 408.040(3), Fla. Stat. AHCA’s
authority to grant extensions is limited to the circumstances set forth in statute and rule. Florida’s First District Court of Appeal recently addressed this issue in Baker County Medical
Services, Inc. v. State, 178 So. 3d 71, 76 (Fla. 1st DCA 2015).
In noting the two bases for granting extensions listed in section 408.040, the court reflected: “This two-fold exception, which the italicized verb suggests is mandatory, applies if litigation or governmental action/inaction has delayed the commencement of a project.” In finding that AHCA’s authority with respect to the validity period of a CON is limited to action authorized by statute, the court observed: “The Legislature could grant the agency the power to delay the issuance of certificates (even indefinitely as Fraser Hospital posits), or to extend their durations for reasons other than the statutory grounds of litigation or governmental action/inaction; but it has not done so. . . .” Id. at 78.
The evidence also fails to establish that AHCA arbitrarily and capriciously denied Crestwood’s extension request. An arbitrary decision is one not supported by facts or logic and a capricious action is one taken without thought or reason or is irrational. Dep't of Health v. Bayfront Med. Ctr.,
Inc., 134 So. 3d 1017, 1018 (Fla. 1st DCA 2012) (citing Fla. Bd. of Med. v. Fla. Acad. of Cosmetic Surgery, Inc., 808 So. 2d 243,
254 (Fla. 1st DCA 2002), superseded on other grounds, as stated in Dep’t of Health v. Merritt, 919 So. 2d 561 (Fla. 1st DCA
2006)); see also Dravo Basic Materials Co. Inc. v. Dep’t of Transp., 602 So. 2d 632, 634 n.3 (Fla. 2d DCA 1992) (“If an
administrative decision is justifiable under any analysis that a
reasonable person would use to reach a decision of similar importance, it would seem that the decision is neither arbitrary nor capricious.”).
AHCA’s decision was neither arbitrary nor capricious, since it was exercised in accordance with the limitations set forth in statute and rule. Ms. Fitch credibly testified that AHCA’s action denying Crestwood’s extension request was based on application of section 408.040 and rule 59C-1.018. Indeed, the agency’s denial letter specifically stated that this was the reason for AHCA’s decision. It is certainly logical, deliberate, rational, and predictable that an agency would follow the applicable law--to which it is tasked to administer and enforce--in reaching a decision. Crestwood’s own misunderstanding of the law and CON procedures do not render AHCA’s decision arbitrary or capricious.
AHCA has not expanded, altered, or ignored the procedural requirements and basis for granting an extension of a CON pursuant to section 408.040 and rule 59C-1.018. Rather, AHCA demonstrated that it followed applicable law in its review and disposition of Crestwood’s extension request.
The stipulations and evidence of record demonstrate that Crestwood’s extension request did not comport with Florida law.
Crestwood failed to prove the elements of equitable estoppel, including detrimental reliance, by clear and convincing evidence. Further, the evidence clearly established that the challenged agency action herein was neither arbitrary nor capricious.
Crestwood failed to demonstrate its entitlement to an extension of its CON under section 408.040 and rule 59C-1.018. Accordingly, AHCA properly denied Crestwood’s request.
RECOMMENDED that AHCA’s denial of Crestwood Nursing Center, Inc.’s, request for a 60-day extension of CON No. 10358 be upheld.
DONE AND ENTERED this 17th day of January, 2018, in Tallahassee, Leon County, Florida.
W. DAVID WATKINS Administrative Law Judge
Filed with the Clerk of the Division of Administrative Hearings this 17th day of January, 2018.
D. Carlton Enfinger, Esquire
Richard A. Feldman, Esquire Richard A. Feldman Attorney at Law
Richard J. Shoop, Agency Clerk
Thomas M. Hoeler, Esquire
15 days from the date of this Recommended Order. Any exceptions to this Recommended Order should be filed with the agency that will issue the Final Order in this case.
