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11/20/91 CAPITOL HILL HOSPITAL v. DISTRICT COLUMBIA

November 20, 1991

CAPITOL HILL HOSPITAL, ET AL., APPELLANTS
v.
THE DISTRICT OF COLUMBIA STATE HEALTH PLANNING AND DEVELOPMENT AGENCY, ET AL., APPELLEES, AND COALITION TO SAVE CAPITOL HILL HOSPITAL, ET AL., INTERVENORS-APPELLEES



Appeals from the Superior Court of the District of Columbia; Hon. Gladys Kessler, Trial Judge.

Before Ferren, Terry, and Wagner, Associate Judges.

The opinion of the court was delivered by: Ferren

FERREN, Associate Judge: Medlantic Healthcare Group and Capitol Hill Hospital (collectively the Hospital) appeal from two trial court orders. The first (Case I) granted a preliminary injunction, sought by the Coalition to Save Capitol Hill Hospital (Coalition), ordering the District of Columbia State Health Planning and Development Agency (SHPDA or the Agency) to require the Hospital to apply for and obtain a Certificate of Need (CON or Certificate) before terminating acute inpatient services. *fn1 The second order (Case II) denied the Hospital's motion for a preliminary injunction to prevent SHPDA from enforcing the Certificate requirements against the Hospital. In Case II the Hospital sought relief designed to countermand the Case I order. We hold the trial court lacked subject matter jurisdiction in both instances. Accordingly, we vacate the December 18, 1990 (Case I) order granting the Coalition's requested preliminary injunction and affirm the February 4, 1991 (Case II) order denying the Hospital's requested preliminary injunction. *fn2

I.

The Hospital is an acute care facility located in Northeast Washington. It has served the community for over one hundred years and is licensed to provide 234 medical/surgical beds and 16 intensive care/coronary care beds. In 1989, its emergency room served approximately 27,000 patients. In the fiscal year that ended in June 1990, the Hospital lost over $5 million after a loss of $1.5 million in fiscal year 1988 and a loss of almost $1 million in fiscal year 1989. The Hospital estimates that in fiscal 1991 it will lose approximately $13 million. According to the Hospital these losses are attributable, "in significant part, to the Hospital's consistent inability to receive compensation for nearly half, or more, of the value of the medical care services it provides." As a result of these losses, Medlantic Healthcare Group, an owner and operator of the Hospital since 1982, decided to eliminate the acute inpatient services and to convert the Hospital to a facility for long-term care and short-term psychiatric services.

On October 11, 1990, the Hospital sent SHPDA a letter of intent to apply for a Certificate to permit a realignment of services. Attached to this letter was a copy of a notice that appeared in the Washington Post on October 11, 1990. *fn3 In its letter, the Hospital described its plan as a "realignment of services," to be "implemented in phases," to create non-acute, long-term care and short-term psychiatric services at the Hospital while consolidating all acute inpatient services at the Washington Hospital Center. *fn4 Also on October 11, the Hospital sent notices to its employees, to their collective bargaining representatives, and to all physicians with whom it had service contracts saying that the notified employees and physicians would to be laid off permanently on or about December 19, 1990. *fn5

On October 19, 1990, the Hospital sent SHPDA a second, "replacement" letter of intent in response to "recent Discussions" with the Agency's staff. This letter "reflected a clarification of timing and regulatory procedures" and noted the Hospital's intention to seek two separate Certificates to proceed with the conversion. *fn6 The letter indicated that the two stages of the application should be viewed as "a single initiative designed to address community need and financial viability" of the Hospital and the Washington Hospital Center. At the end of the letter, the Hospital added: "regardless of the outcome of this Certificate of Need, the acute inpatient services at CHH will cease operation on or about January 17, 1991."

After further Discussions with SHPDA officials, the Hospital sent the Agency a third letter on October 26, 1990:

In [the October 19, 1990] letter we also notified the SHPDA that the acute inpatient services at CHH would be closed on or about January 17, 1991. As that Letter states, it is our intention to terminate those services and obtain a Certificate of Need to convert the hospital building to other uses, but the acute care services will be terminated even if the requested Certificate of Need to do so is not granted. No capital expenditures are required for the closing, but only for the conversion of the building into other uses, for which a Certificate of Need will be requested.

D.C. Code § 32-303 (f) (1988) requires a Certificate of Need to close a health service if -- and only if -- the closing "involves a capital expenditure in any amount." Because of the magnitude of the proposed closing, therefore, SHPDA asked the Hospital to supply an affidavit verifying that no capital expenditure would be needed to close the acute inpatient services. The Hospital sent the affidavit. SHPDA also called the Hospital to determine whether the closing would affect the Hospital's federal (Hill-Burton) loan obligations. While the trial court did not permit Director Graham to disclose her conversation with the officials because of hearsay objections, Graham did testify that she was "satisfied" the closing did not involve capital expenditures. Convinced that the proposed closing would be altogether separate from the conversion project, SHPDA declared in either late October or early November that the closing itself would not require a Certificate. *fn7

After learning of the Hospital's intentions, the Coalition *fn8 hand-delivered letters on October 16, 1990 to the Mayor and to Carolyn Graham, SHPDA Director, detailing alleged violations of the Hospital's outstanding Certificate (of April 20, 1990) and requesting that they revoke the Hospital's April 1990 Certificate. Having received no response, the Coalition petitioned SHPDA on October 23, asking for enforcement action against the Hospital because of continuing Certificate violations. *fn9 Again, the Coalition received no response. On November 5, the Coalition filed a complaint in Superior Court for equitable relief against the Mayor, SHPDA, and Graham (Case I) without joining the Hospital as a party. In the meantime, three days earlier, the Hospital had filed its formal application with SHPDA for two Certificates of Need for its anticipated conversion.

Judge Moore denied the Coalition's motion for a temporary restraining order. Judge Kessler held a preliminary injunction hearing on December 12 and 13, and, on December 18, she issued a preliminary injunction ordering SHPDA to require the Hospital to obtain a Certificate of Need before closing acute inpatient services.

The closing of medical surgical services at [the Hospital] is a substantial change in service involving a capital expenditure[.] [SHPDA is] enjoined pending the final Disposition of this matter on the merits under D.C. Code 32-303 to require that the Medlantic Health Care Group apply for and obtain a certificate of need before terminating such services at [the Hospital].

Contrary to SHPDA's earlier ruling, the Judge concluded that the closing, like the conversion, was part of the Hospital's announced "single initiative" to reorganize the Hospital and the Washington Hospital Center at a cost of $10 million dollars. Judge Kessler added that, even if the closing as such were seen as an altogether separate transaction, that closing would cause the Hospital itself to shut down and thus trigger required repayment of federal (Hill-Burton) loans. According to Judge Kessler, such repayment would require capital expenditures and thereby invoke the Certificate of Need requirement. The Judge accordingly concluded that, under either analysis, the Hospital could not close its acute inpatient services without a Certificate.

That same day, December 18, SHPDA told the Hospital that, because of the court's ruling, the Hospital had to obtain a Certificate before closing its acute inpatient services. On December 20, the Mayor announced that the District would not appeal the preliminary injunction.

The next day, the Hospital filed a complaint for Declaratory Judgment and Injunctive Relief (Case II) in Superior Court against SHPDA and its Director, Carolyn Graham, asking the court to prevent the District from applying Certificate of Need requirements to the Hospital's proposed closing of its acute inpatient services, and seeking a ruling that enforcement of the Certificate process would amount to an unconstitutional taking. In a nutshell, the Hospital was attempting through a separate lawsuit to undo the preliminary injunction in Case I, to which the Hospital was not a party. On January 4, 1991, the trial court granted the Hospitals request to consolidate Cases I and II and, four days later, granted the Hospital leave to intervene in Case I. That same day, January 8, the Hospital issued a memorandum to its employees saying it had extended their layoffs until a "date between the period of February 20, 1991 and March 5, 1991." On January 8, in response to SHPDA's ruling attributable to the Case I preliminary injunction, the Hospital sent the Agency a Letter of Intent to file Certificate to close its acute inpatient services. Six days later, the Hospital filed a Notice of Appeal in Case I.

On January 30, 1991, Judge Kessler held a non-evidentiary hearing on the issues the Hospital raised in Case II. On February 4, the Judge denied the Hospital's motion for preliminary injunction to halt application of the Certificate process to the proposed closing. The Judge noted that SHPDA was currently reviewing the Hospital's application for a Certificate to close acute care services and that no final decision had been made. Judge Kessler therefore refused to interfere with SHPDA's decision-making process and dismissed the Hospital's motion because of the failure to exhaust administrative remedies.

The Hospital accordingly sent SHPDA a letter on February 13, requesting expedited treatment of its application for a Certificate and waiver of certain procedural requirements. The District filed a Motion for Temporary Restraining Order on February 14 to prevent the Hospital from closing its acute inpatient services before it had received the required Certificate. The trial court denied the District's motion the next day, ruling it was premature.

On February 19, the Hospital filed an application for a Certificate to close its acute inpatient services. On February 22, Director Graham told the Hospital that SHPDA could not exempt it from a Certificate of Need for closing acute inpatient services and that a final decision on the Hospital's application could not be made until June 20, 1991. Nonetheless, on February 25, the Hospital's President and Chief Executive Officer sent a letter to all employees saying that by March 5 "all acute services will cease." On March 1, the Hospital published a public notice in the Washington Post ...


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