Catonsville Nursing Home, Inc. v. Loveman

CATHELL, Judge. Catonsville Nursing Home and Maryland Health Resources Planning Commission, appellants, appeal from a reversal by the Circuit Court for Baltimore County of the Maryland Health Resources Planning Commission’s decision with respect to the allocation of nursing home “bed rights” as between Catonsville Nursing Home and its landlord, Joseph Loveman. Finding in favor of Aurelia Loveman, Guardian for the Estate of Joseph Loveman, appellee, the circuit court held that an exemption provision for health care projects in existence prior to the 1978 enactment of a comprehensive health planning statute was a right that attached to and ran with the land. Accordingly, the circuit court found that the bed rights in dispute belonged to appellee.

We shall reverse the judgment of the circuit court and remand with direction that it affirm the decision of the Maryland Health Resources Planning Commission. I. Facts and Procedural History Catonsville Nursing Home (CNH) and the Maryland Health Resources Planning Commission (Commission) appeal from the judgment of the Circuit Court for Baltimore County reversing an earlier Commission decision. The Commission had determined that CNH, as the operator and licensee of nursing home services, as opposed to Loveman, as the owner ⁵⁶⁴ of the building housing the nursing home operation and CNH’s landlord, held the bed rights in question and, accordingly, was the entity with authority to seek Commission approval affecting those bed rights. This case has a lengthy procedural history and factual background, which were described in a previous appeal to the Court of Special Appeals.

Loveman v. Catonsville Nursing Home, 114 Md.App. 603 , 691 A.2d 693 (1996). There that court stated: In 1960, Mr. Loveman opened a 98-bed comprehensive care facility at 333 Harlem Lane, in Baltimore County____ [T]he home was operated through a corporation known as Shangri-La Nursing Center, Inc., in which Loveman owned all the stock.... [H]e was the licensee and he ran the home as an owner-operated facility. In 1978, the Legislature enacted a comprehensive health planning law that, among other things, created a health planning and development agency and provided that a health care facility may not be established, relocated, or undergo a change in bed capacity without a certificate of need (CON) issued by that agency. The law exempted from that requirement ... a health care facility, such as that operated by Mr. Loveman, that was in operation before June 1, 1978.

That exemption underlies the instant dispute. Mr. Loveman operated the home through Shangri-La until 1981, when, as a consequence of his being convicted of medicaid fraud, he was required to surrender his nursing home administrator’s license and refrain from participation in the management or operation of a nursing home in Maryland. [In response to that restriction, Loveman leased] the real property and ... personalty used in the operation to one Dexter Case. Case, in turn, assigned his rights to Joseph Kaplan and Benjamin Ashman, who proceeded to operate the home under the name Inglenook Nursing and Convalescent Center [Inglenook]. Both the lease and the assignment were contingent on Kaplan and Ashman obtaining a license to operate the center.

That license was issued in September, 1981. [In order to qualify ⁵⁶⁵ for that license, Inglenook was issued its own certificate of need.] In 1987, the Center was acquired by Evergreen Health Group, Inc. In December, 1987, Loveman and Evergreen entered into a new four-year lease for the facility, with a six-year renewal option and an option to purchase. HRPC (the successor agency to the Health Planning and Development Agency) concluded that, as there would be no change in services or bed capacity, the acquisition was exempt from CON review. 1 Evergreen eventually exercised the option to renew. Although it is not clear from the record before us, we assume that Evergreen obtained either a new license to operate the home or an approved assignment of the license that had been issued to Kaplan and Ashman. In November, 1990, Evergreen assigned its lease to appellee, Catonsville Nursing Home, Inc. (CNH).

Included in the assignment was Evergreen’s nursing home license, although the assignment was made expressly contingent on (1) approval by the Department of Health and Mental Hygiene of the transfer of the license, and (2) a determination by HRPC that a CON was not required to complete the transaction. As in 1987, the Commission, assured that there would be no change in services or bed capacity, determined that the acquisition was exempt from CON review. ... Although not clearly articulated in the briefs or the papers filed below, it is evident that what appellant fears is that, near or upon expiration of the current lease, CNH will seek permission from HRPC to transfer the beds to another location, that the Commission may grant that request by issuing a CON, and that Loveman will then be left in the position of being unable to lease his property to another ⁵⁶⁶ licensee unless that licensee obtains a new CON to replace the bed capacity that was moved.[ 2 ] 114 Md.App. at 605-07 , 691 A.2d at 694-95 (footnote omitted). On remand from the Court of Special Appeals, the Commission, in its Final Decision on Petition for Declaratory Relief, 3 framed the issue as “which entity—the licensee or the owner of the bricks and mortar of a nursing home—has the right to request Commission approvals regarding that nursing home[?]” The Commission resolved the issue by determining “that CNH as the lessee and operator of the facility—rather than Loveman as the owner of the bricks and mortar—has the right to seek Commission approvals affecting the comprehensive care facility beds currently being operated as Catonsville Community Convalescent Center.” Loveman argued to the Commission, to the circuit court, and now to this Court, that the bed rights in question, which are derived from the right to operate a health care project as provided in a CON or exemption, run with the land because the physical facility itself was exempted from obtaining a CON when the new statutory scheme was enacted by Chapter 911 of the Maryland Session Laws of 1978.

The circuit court agreed with Loveman and disagreed with the Commission’s finding that the CON and its concomitant bed rights belonged to CNH, stating in part: When the health planning statute was enacted in 1978 and Shangri-La was permitted by the legislature to continue to ⁵⁶⁷ operate beds without a showing of need, that right attached to the land. The ... right so created is analogous to the non-conforming use granted to a gasoline station operating in a residential area before zoning laws.... ... [W]hen Loveman surrendered his license to operate a nursing home, only his individual fitness to operate the beds was being impugned. The right to operate beds without further application to the [C]ommission was the expression of the legislature’s determination that the geographic distribution of beds existing in 1978 was an appropriate starting point for future planning. Accordingly, this right ran, and continues to run, with the land.

Appellants filed a timely notice of appeal to the Court of Special Appeals. We issued a writ of certiorari prior to that court’s consideration of the issues raised. Appellant CNH presents the following questions for our review: I. Did the Maryland Health Resources Planning Commission have substantial evidence to support its conclusion that the right to petition the Commission regarding future use of nursing home beds rested with the licensed health care provider, rather than a mere landlord who was forced to terminate providing nursing home care in 1981 due to a medicaid fraud conviction?

II

Did the circuit court err when it decided, without evidence of such a legislative intent, that nursing home bed rights are a real property interest that “runs with the land,” rather than a transferable license or permit? The Commission presents one question: Did the Maryland Health Resources Planning Commission correctly determine that the licensed nursing home provider tenant, rather than the landlord who has been precluded since 1981 from providing nursing home care due to a medicaid fraud conviction, controls the right to request future Commission approvals for usage of nursing home beds? We perceive that the resolution of two questions will resolve all of the questions presented: (1) What is the effect of the ⁵⁶⁸ provision of the Laws of Maryland 1978, Chapter 911, which stated that a health care project in operation prior to the effective date of the act was not subject to the act’s prohibition against operating a health care project without a CON? (2) What is the effect of appellee’s acquiescence in the obtention by Inglenook of a new CON in 1981 and appellee’s continued acquiescence since 1981 in the operation of the project pursuant to that CON?

Each of these questions are of a legal nature.

II

DISCUSSION A. Standard of Review Judicial review of an administrative agency’s decision is authorized by Maryland Code (1984, 1995 Repl.Vol.), § 10-222 of the State Government Article. Under subsection (h), when exercising such review, the court may: (1) remand the case for further proceedings; (2) affirm the final decision; or (3) reverse or modify the decision if any substantial right of the petitioner may have been prejudiced because a finding, conclusion, or decision: (i) is unconstitutional; (ii) exceeds the statutory authority or jurisdiction of the final decision maker; (in) results from an unlawful procedure; (iv) is affected by any other error of law; (v) is unsupported by competent, material, and substantial evidence in light of the entire record as submitted; or (vi) is arbitrary or capricious. In general, [a] court’s role is limited to determining if there is substantial evidence in the record as a whole to support the agency’s findings and conclusions, and to determine if the administrative decision is premised upon an erroneous conclusion of law. ⁵⁶⁹ United Parcel Serv., Inc. v. People’s Counsel, 336 Md. 569, 577 , 650 A.2d 226, 230 (1994); Ward v. Department of Pub. Safety & Correctional Servs., 339 Md. 343, 347 , 663 A.2d 66, 67-68 (1995).

Our review of the agency’s factual findings entails only an appraisal and evaluation of the agency’s fact finding and not an independent decision on the evidence. Anderson v. Department of Pub. Safety & Correctional Servs., 330 Md. 187, 212 , 623 A.2d 198, 210 (1993). This examination seeks to find the substantiality of the evidence. “That is to say, a reviewing court, be it a circuit court or an appellate court, shall apply the substantial evidence test to the final decisions of an administrative agency....” Baltimore Lutheran High Sch.

Ass’n v. Employment Sec. Admin., 302 Md. 649, 662 , 490 A.2d 701, 708 (1985); Anderson, 330 Md. at 212 , 623 A.2d at 210 ; Bulluck v. Pelham Wood Apts., 283 Md. 505, 511-13 , 390 A.2d 1119, 1123 (1978). In this context, “ ‘[substantial evidence,’ as the test for reviewing factual findings of administrative agencies, has been defined as ‘such relevant evidence as a reasonable mind might accept as adequate to support a eonclusion[.]’ ” Bulluck, 283 Md. at 512 , 390 A.2d at 1123 (quoting Snowden v. Mayor of Baltimore, 224 Md. 443, 448 , 168 A.2d 390, 392 (1961)). We have said, “reviewing courts are under no constraint to affirm an agency decision premised solely upon an erroneous conclusion of law.” Insurance Comm’r v. Engelman, 345 Md. 402, 411 , 692 A.2d 474, 479 (1997). Accordingly, we may reverse an administrative decision premised on erroneous legal conclusions.

See People’s Counsel v. Maryland Marine Mfg., 316 Md. 491, 497 , 560 A.2d 32, 34-35 (1989). We are also obligated to “review the agency’s decision in the light most favorable to the agency,” since their decisions are prima facie correct and carry with them the presumption of validity. Anderson, 330 Md. at 213 , 623 A.2d at 211 ; Bulluck, 283 Md. at 513 , 390 A.2d at 1124 . ⁵⁷⁰ In the case at hand, the circuit court misconstrued the exemption provision provided in the Health Planning and Development Act. B. Statutory Interpretation The cardinal rule of statutory construction is to ascertain and effectuate the intent of those who framed or adopted the statute.

Oaks v. Connors, 339 Md. 24, 35 , 660 A.2d 423, 429 (1995). The intention of the legislature must be sought first in the actual languagé of the statute. Marriott Employees Fed. Credit Union v. Motor Vehicle Admin., 346 Md. 437, 444-45 , 697 A.2d 455, 458 (1997); Stanford v. Maryland Police Training & Correctional Comm’n, 346 Md. 374, 380 , 697 A.2d 424, 427 (1997)(quoting Tidewater v. Mayor of Havre de Grace, 337 Md. 338, 344 , 653 A.2d 468, 472 (1995); Coburn v. Coburn, 342 Md. 244, 256 , 674 A.2d 951, 957 (1996); Romm v. Flax, 340 Md. 690, 693 , 668 A.2d 1, 2 (1995); Oaks, 339 Md. at 35 , 660 A.2d at 429 ; Mauzy v. Hornbeck, 285 Md. 84, 92-93 , 400 A.2d 1091, 1095-96 (1979); Board of Supervisors of Elections v. Weiss, 217 Md. 133, 136 , 141 A.2d 734, 736 (1958)). A court, in determining legislative intent, must read the language of the statute in context and in relation to all of its provisions and its purpose.

Howard Research & Dev. Corp. v. Concerned Citizens for Columbia Concept, 297 Md. 357, 364 , 466 A.2d 31, 34 (1983). Furthermore, where the statutory language is plain and free from ambiguity and expresses a definite and simple meaning, courts do not normally look beyond the words of the statute itself. Marriott Employees, 346 Md. at 445 , 697 A.2d at 458 ; Kaczorowski v. Mayor and City Council of Baltimore, 309 Md. 505, 513 , 525 A.2d 628, 632 (1987); Hunt v. Montgomery County, 248 Md. 403, 414 , 237 A.2d 35, 41 (1968).

See also Brodsky v. Brodsky, 319 Md. 92, 98 , 570 A.2d 1235, 1237 (1990) (“[W]e look first to its language, ... we assume that the words of the statute are intended to have their natural, ordinary and generally understood meaning in the absence of evidence to the contrary.”) (citing Kaczorowski, 309 Md. at 513-14 , 525 A.2d at 632 ); ⁵⁷¹ Tucker v. Fireman’s Fund Ins. Co., 308 Md. 69, 74-75 , 517 A.2d 730, 731-32 (1986). The Court in Tucker opined: That a term may be free from ambiguity when used in one context but of doubtful application in another context is well settled____ ... We ... recognize the rule that where a statute is plainly susceptible of more than one meaning and thus contains an ambiguity, courts consider not only the literal or usual meaning of the words, but their meaning and effect in light of the setting, the objectives and purpose of the enactment---- [T]he court ... may consider the consequences resulting from one meaning rather than another, and adopt that construction which avoids an illogical or unreasonable result, or one which is inconsistent with common sense.

Id. at 74-75 , 517 A.2d at 732 (citations omitted). We stated in D & Y, Inc. v. Winston, 320 Md. 534, 538 , 578 A.2d 1177, 1179 (1990) (citations omitted), that “construction of a statute which is unreasonable, illogical, unjust, or inconsistent with common sense should be avoided.” See also Blandon v. State, 304 Md. 316, 319 , 498 A.2d 1195, 1196 (1985) (“[Rjules of statutory construction require us to avoid construing a statute in a way which would lead to absurd results.”); Erwin & Shafer, Inc. v. Pabst Brewing Co., 304 Md. 302, 311 , 498 A.2d 1188, 1192 (1985) (“A court must shun a construction of a statute which will lead to absurd consequences.”); Comptroller v. Fairchild Indus., 303 Md. 280, 284 , 493 A.2d 341, 343 (1985) (“A statute should not be construed by forced or subtle interpretations.”). Where there is a “lack of relevant legislative history, we must rely substantially on the language of the statutes in the context of the goals and objectives they seek to achieve.” Subsequent Injury Fund v. Teneyck, 317 Md. 626, 632 , 566 A.2d 94, 97 (1989)(citing Kaczorowski, 309 Md. at 512-16 , 525 A.2d at 632-33 )(emphasis added). ⁵⁷² III. Analysis A. Statutory Scheme This case addresses an issue of first impression in Maryland of whether the exemption from obtaining a CON runs with the land or terminates when the party exempted ceases to use the health care project as a health care project.

Accordingly, we must examine Maryland’s Health Planning and Development Act. Because it was derived from federal provisions, we begin our discussion with federal legislative background. The United States Congress, in an attempt to curb the rising costs of health care across the country, passed the National Health Planning and Resources Development Act of 1974, Pub.L. No. 93-641, 88 Stat. 2225 (1975) (codified at 42 U.S.C. § 300 -k-300n-6 (1982)), amended by Health Planning and Resources Development Amendments of 1979, Pub.L. No. 96-79, §§ 1-129, 93 Stat. 592 (codified at 42 U.S.C. §§ 300k-300t (1976 & Supp. V 1981)), repealed by Pub.L. No. 99-660 § 701 , 100 Stat. 3743 , 3799 (1986)(Federal Act). This act provided substantial federal funding conditioned on a state’s enactment of certain health care planning laws.

As relevant to this opinion, the Federal Act required states to implement a state health plan (SHP) and administer a CON program for “new institutional health services proposed to be offered or developed within the State.” § 1523(a)(4)(B), 88 Stat. at 2246. The purpose of the CON requirement was to add “teeth” to the Federal Act and to help Congress achieve its goals of limiting skyrocketing health care costs, preventing unnecessary duplication of health facilities and resources, and fostering equal access to quality health care for a reasonable cost. Patrick McGinley, Beyond Health Care Reform: Reconsidering Certificate of Need Laws in a “Managed Competition” System, 23 Fla. St. U.L. Rev. 141, 148 (1995).

Congress repealed the CON requirements in 1986, apparently because it was “counterproductive for reforming health care.” Id. Many states, however, including Maryland, retained their CON laws. ⁵⁷³ In 1975, the Maryland General Assembly authorized the Governor to implement provisions of the Federal Act. 1975 Md. Laws, Chap. 383. In 1978, the General Assembly, finding that it was a priority of the State to assure equal financial and geographic access to quality health care for all citizens at a reasonable cost, created the Maryland Health Planning and Development Agency and the Maryland Health Resources Planning Commission to carry out the federal and state legislation. 1978 Md. Laws, Chap. 911. See also § 19—102(a).

This bill was codified as Maryland’s Health Planning and Development Act and implemented the laws and the procedures for obtaining a CON. Chapter 911 provided an exemption provision from CON requirements for health care projects in existence prior to 1978. The exemption provision stated in pertinent part: 59J. Certificate of Need.

(A) (1) A person or health care facility may not develop, operate, or participate in a health care project unless the state agency has issued a certificate of need for the project. (2) This subsection does not apply to a health care project which: (I) was not subject to Certificate of Conformance Review as required by Chapter 222 of the Acts of 1968; and (II) was completed and in operation on or before June 1, 1978. [Emphasis added.] Accordingly, those health care projects in operation before June 1, 1978 were exempt from the process of obtaining a CON. The projects were not exempt from other statutory requirements. Although this Court has not reviewed in great depth the CON exemption provision of the Health Planning and Development Act, we have had occasion to review the Act’s purpose.

We said in Sinai Hospital v. Maryland Health Resources Planning Commission, 306 Md. 472, 473 , 509 A.2d 1202, 1202 (1986), that under the comprehensive health care statutory framework “[a] priority of this State is ‘to promote the development of a health care system that provides, for all citizens, ⁵⁷⁴ financial and geographic access to quality health care at a reasonable cost.’ ” See also § 19-102. The Court of Special Appeals has said that the Federal Act upon which Maryland’s CON laws are based “encouraged states to look at the problems of costly maldistribution and excess supply of certain health services and facilities.” Doctors’ Hospital v. Maryland Health Resources Planning Comm’n, 65 Md.App. 656, 662 , 501 A.2d 1324, 1327 (1986). Maryland’s goals were refined and put into effect by the Commission in the SHP. By statute, the Commission must develop and adopt, at least every five years, an SHP.

The SHP must include: (i) A description of the components that should comprise the health care system; (ii) The goals and policies for Maryland’s health care system; (iii) Identification of unmet needs, excess services, minimum access criteria, and services to be regionalized; (iv) An assessment of the financial resources required and available for the health care system; (v) The methodologies, standards, and criteria for certificate of need review; and (vi) Priority for conversion of acute capacity to alternative uses where appropriate. § 19-114(a)(2). In addition, the Commission must adopt “specifications for the development of local health plans and their coordination with the State health plan.” § 19-114(b). With respect to the SHP, the Court of Special Appeals, repeating our language from Sinai, stated that its purpose “is to establish an integrated system of care that ‘assures geographic and financial access to a range of quality health care services at a reasonable cost for all citizens.’” Changing Point, Inc. v. Maryland Health Resources Planning Comm’n, 87 Md.App. 150, 155 , 589 A.2d 502, 504 (1991) (quoting CO-MAR 10.24.14.02A). A CON must be issued consistent with the goals of the SHP. § 19-118(c)(l).

With regard, to the CON provisions, the ⁵⁷⁵ United States District Court for the District of Maryland has noted recently that “the CON requirement serves ‘to assure an efficient and effective health care system for Maryland. ...’ ” United States v. Community Home Health, 984 F.Supp. 374, 381 (D.Md.1997) (quoting Maryland Gen. Hosp. v. Maryland Health Resources Planning Comm’n, 103 Md. App. 525, 528 , 653 A.2d 1029, 1031 , cert. denied, 339 Md. 355 , 663 A,2d 72 (1995)). Accordingly, the CON requirements are the “teeth” of Maryland’s Health Planning and Development Act. B. Exemption Clause as a Privilege As we noted, supra, section 59J of Chapter 911 provided that a person or health care entity, which included the nursing home then operated by Loveman, could not develop, operate, or participate in a health care project unless the state agency issued a CON for the project. 1978 Md. Laws, Chap. 911, § 59J(A)(1).

The bill also provided, however, that the CON requirement provision did not apply to a health care project which “was completed and in operation on or before June 1, 1978.” Id. at 59J(A)(2)(II). Therefore, Loveman’s health care project, the nursing home services he provided at the facility on 333 Harlem Lane, was not automatically granted a CON. The project was, to the extent of its operations as of June 1,1978, exempted from the requirement to then obtain a CON. Our task in this case, therefore, is to interpret this exemption and what the General Assembly intended by allowing health care projects in existence at the time of the statute’s enactment to be exempt from obtaining an otherwise mandatory CON.

This is an issue of statutory construction and a question of law. Nowhere in section 59J of