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SHENANGO VALLEY OSTEOPATHIC HOSPITAL v. DEPARTMENT HEALTH COMMONWEALTH PENNSYLVANIA (10/21/82)

SUPREME COURT OF PENNSYLVANIA


decided: October 21, 1982.

SHENANGO VALLEY OSTEOPATHIC HOSPITAL, ON ITS OWN BEHALF AND ON BEHALF OF ITS MEDICAL STAFF AND PATIENTS,
v.
DEPARTMENT OF HEALTH OF THE COMMONWEALTH OF PENNSYLVANIA, APPELLANTS

No. 11 M.D. Appeal 1982, Appeal from the Order Dated April 14, 1982 of the Commonwealth Court at No. 418 C.D. 1982

COUNSEL

Joel M. Ressler, Deputy Atty. Gen., for appellants.

Daniel M. Mullholland, III, Barbara Blackmond, John S. Hoff, pro hac vice, for appellee.

O'Brien, C.j., and Roberts, Nix, Larsen, Flaherty, McDermott and Hutchinson, JJ. Flaherty and Hutchinson, JJ., filed dissenting opinions in which Larsen, J., joined.

Author: Nix

[ 499 Pa. Page 41]

OPINION OF THE COURT

The Health Care Facilities Act (Act), 35 P.S. § 448.101 et seq. was enacted to insure the orderly and economical distribution

[ 499 Pa. Page 42]

    of health care resources to prevent needless duplication of services and to enhance the health and welfare in this Commonwealth. The Legislature charged the Department of Health (Department) with fostering a sound, coordinated health care system. This litigation concerns the validity of the Department's ruling that a certificate of need must first be obtained by the Shenango Valley Osteopathic Hospital (Hospital) before purchase and use of a Computerized Tomography scanner (C.T. scanner). The principal question on appeal*fn1 is whether the hospital had a clear right to the special relief from the Department's ruling afforded it by the Commonwealth Court.

The facts, as adduced from the record, reveal that on July 29, 1981 the Hospital entered into a binding contract of purchase for a full body C.T. scanner*fn2 from Technicare Corporation of Cleveland, Ohio and paid 25% ($67,125.00) of the total purchase price of $268,500.00. The Hospital accepted delivery of the C.T. scanner on August 20, 1981 and made an additional payment leaving a balance of 10% due upon installation. The Act required certificates of need for new institutional health services,*fn3 including (at that time) capital expenditures in excess of $150,000.00, and/or an operating

[ 499 Pa. Page 43]

    expense in excess of a $82,200 threshold.*fn4 The Act mandates the filing of a notice of intent prior to the institution of a project for services or the acquisition of equipment which require a certificate of need.*fn5 On August 4, 1981, the Hospital supplied the Department and Health Systems Inc. of N.W. Pennsylvania with a notice of intent to purchase the C.T. scanner. The notice of intent sent by the hospital did not refer to the contract entered into on July 29, 1980 or the subsequent performance under that contract.

[ 499 Pa. Page 44]

Almost two months later (September 29, 1981), the Hospital sought to withdraw without prejudice its letter of intent. The letter of withdrawal assumed that the new thresholds of $600,000 for capital expenditures and $250,000 for operating expenses established under the federal Omnibus Budget Reconciliation Act of 1981, P.L. 97-35, § 936 (effective October 1, 1981) (Omnibus Act) automatically negated the necessity of a certificate of need review for this transaction. The letter, ignoring the reality that the contract had been entered into and substantially performed prior to the increase of those thresholds, implied that an intended acquisition would be made under the new thresholds. The Department, relying on the facts set forth in the letter of withdrawal, nevertheless contended that the obtaining of a certificate of need was still required under section 701(a)(3), supra, relating to a capital expenditure which results in the addition of a health service not provided in the previous 12 months. Moreover, the Department did not address the applicability of the new Omnibus Act thresholds to completed transactions because the Hospital had withheld the fact of its completed purchase of the C.T. scanner. On November 2, 1981 the Department learned for the first time the true facts surrounding the purchase of the scanner.

On November 6, 1981, the Hospital filed an appeal of the Department's reviewability decision with the State Health Facility Hearing Board (Board). On November 19, 1981 the Department notified the Hospital that under the circumstances its acquisition of the C.T. scanner was a violation of the Act and operation of the scanner would be deemed a wilfull violation subject to penalties. On December 17, 1981 counsel for the Department informed the Hospital that in order to cease violating the Act, the Hospital should divest itself of ownership and possession of the scanner or obtain a certificate of need. Thereafter, on January 25, 1982 the Hospital filed an application for a certificate of need and also moved for a continuance of its appeal from the determination of reviewability. The motion for continuance was granted.

[ 499 Pa. Page 45]

On March 1, 1982, while the application for a certificate of need was, and still is, pending, the Hospital filed a petition for review seeking declaratory and injunctive relief. The thrust of the Hospital's constitutional objection was that the delegation of authority to the Department under the Act contravenes Art. 2, Section 1 of the Pa. Constitution, and that the denial of interim use of the C.T. scanner was arbitrary and capricious.

The Hospital requested that the Department be enjoined from enforcing the Act against it with respect to the Hospital's operation of the C.T. scanner and sought the right to use the equipment pending a determination of the issues presented.

On March 15, 1982 the Hospital filed an Application for Special Relief with the Commonwealth Court. A hearing was scheduled for April 13, 1982. Preliminary objections raising a question of jurisdiction, in the nature of a demurrer and a motion to strike on the grounds of impertinency were filed by the Department. No disposition was made of the preliminary objections.

After hearing held on the appointed date, the Honorable David W. Craig entered an order, dated April 14, 1982, (a) authorizing the Hospital to use the C.T. scanner pending final disposition of the certificate of need or petition for review, whichever is later, (b) holding that the operation of the scanner shall not be deemed to be in violation of the Act and (c) enjoining the Department from bringing any enforcement or penalty action based on operation of the C.T. scanner or otherwise interfering with its operation during the pendency of the application or the petition for review. The following day, April 15, 1982, the Department filed a notice of appeal to this Court, which operated as an automatic supersedeas pursuant to Pa.R.A.P. 1736(b).*fn6 On motion

[ 499 Pa. Page 46]

    of the Hospital, Judge Craig vacated the supersedeas on April 22, 1982.

I.

At the outset, we address the propriety of the Commonwealth Court's exercise of jurisdiction. Appellant questions the Commonwealth Court's exercise of jurisdiction because of the Hospital's alleged failure to exhaust available administrative remedies.*fn7

A significant factor in considering the appropriateness of judicial intervention is the doctrine of exhaustion of administrative remedies. Canonsburg Gen. Hospital v. Dept. of Health, 492 Pa. 68, 422 A.2d 141 (1980); Delaware Valey Convalescent Center, Inc. v. Beal, 488 Pa. 292, 412 A.2d 514 (1980). See, e.g., Commonwealth v. Glen Alden Corp., 418 Pa. 57, 210 A.2d 256 (1965); Collegeville Borough v. Philadelphia Suburban Water Co., 377 Pa. 636, 105 A.2d 722 (1954). In Canonsburg we stated:

Well settled case law of this Court precludes a party's challenging administrative decision making from obtaining judicial review, . . ., without first exhausting administrative remedies . . . . Judicial review without either a proper record or an administrative adjudication would

[ 499 Pa. Page 47]

    constitute "premature interruption of the administrative process." (Citation omitted).

Id., 492 Pa. at 73, 422 A.2d at 144.

The legislature has made it clear that statutorily-prescribed remedies are to be strictly pursued.

In all cases where a remedy is provided, or a duty enjoined, or anything direct to be done by any act or acts of assembly of this commonwealth, the directions of the said acts shall be strictly pursued, and no penalty shall be inflicted, or anything done agreeably to the provisions of the common law, in such cases, further than shall be necessary for carrying such act or acts in effect.

Act of March 21, 1806, P.L. 558, 4 Sm.L. 326, § 13, 46 P.S. § 156.*fn8

The doctrine of exhaustion of administrative remedies as a restraint upon the exercise of a court's equitable powers not only reflects a recognition of the general assembly's directive of strict compliance with statutorily-prescribed remedies, it also acknowledges that an unjustified failure to follow the administrative scheme undercuts the foundation upon which the administrative process was founded. This premise was succinctly set forth in our decision in T. Mendelson Co., Inc. v. Pennsylvania R.R. Co., 332 Pa. 470, 474, 2 A.2d 820, 822 (1938).

The technical nature of the subject, and the peculiar ability of an administrative body to examine it, suffice as a matter of public policy to displace preliminary court action.

[ 499 Pa. Page 48]

The premature interruption of the administrative process restricts the agency's opportunity to develop an adequate factual record, limits the agency in the exercise of its expertise and impedes the development of a cohesive body of law in that area. McKart v. U.S., 395 U.S. 185, 89 S.Ct. 1657, 23 L.Ed.2d 194 (1969). See also, Weinberger v. Salfi, 422 U.S. 749, 95 S.Ct. 2457, 45 L.Ed.2d 522 (1975); Parisi v. Page 48} Davidson, 405 U.S. 34, 92 S.Ct. 815, 31 L.Ed.2d 17 (1973). It is therefore clearly appropriate to defer judicial review when the question presented is one within the agency's specialization and when the administrative remedy is as likely as the judicial remedy to provide the desired result. However, a distinctly different situation is presented where the remedy afforded through the administrative process is inadequate. Feingold v. Bell of Pa., 477 Pa. 1, 383 A.2d 791 (1978); Borough of Green Tree v. Board of Property Assessments, 459 Pa. 268, 328 A.2d 819 (1974) (plurality opinion); Philadelphia Life Ins. Co. v. Commonwealth, 410 Pa. 571, 190 A.2d 111 (1963).

In Borough of Green Tree, supra, this Court was unsuccessful in achieving a consensus on the question whether the mere assertion of a constitutional challenge to a statute eliminates the exhaustion of remedies requirement and permits equitable intervention. Nevertheless, it was clear from that decision that four members of this Court agreed the doctrine of exhaustion of remedies would not bar equitable intervention where there are both a substantial question of constitutionality and the absence of an adequate statutory remedy. 459 Pa. at 276, 328 A.2d at 819.*fn9

Appellee charges that (1) the delegation of authority to the Department under the Act contravenes Art. II, Section 1 of the Pennsylvania Constitution,*fn10 (2) the Act is too vague as to what constitutes a "violation," "willful violation" or "continuing violation," (3) the Act is too broad as to the discretion vested in the Department to define what specific services are subject to review, including "new institutional health services," (4) there is a vacua as to regulations, and

[ 499 Pa. Page 49]

(5) the Department's denial of the use of the C.T. scanner by appellee and its patients, pending the administrative review process, constitutes arbitrary and capricious action.

The Act does not provide any remedy or appeal process to resolve such issues. The Board's jurisdiction is explicitly set forth.*fn11 Authority to pass upon the constitutionality of the agency's enabling Act is not mentioned. Nor may it reasonably be inferred. The criteria for membership on the Board ("familiarity and expertise with health care facilities or for relevant training and experience which will assist the board to perform its function," 35 P.S.A. § 448.501), do not support a claim that these challenges could be adjudicated by the Board.*fn12 The constitutionality of the Board's enabling Act is beyond the agency's jurisdiction.

Moreover, the issues raised by the instant challenges are not within the purview of the expertise of the Board and/or Department and no factual issues requiring the development of a record are present. The participation of the Board or Department at this stage is unnecessary.

To postpone the determination of such serious questions of the statute's constitutionality serves no purpose. We are not here faced with a premature interruption of the administrative process but rather a determination of the constitutional

[ 499 Pa. Page 50]

    validity of the statute which provides the sine qua non for the validity of the entire process. The evils of piecemeal judicial intervention in the administrative process are not raised where judicial relief is limited to resolving questions concerning the constitutionality of an enabling act. Cf. Borough of Green Tree v. Board of Property Assessments, supra, 459 Pa. at 281, 328 A.2d at 825. See also, Lynch v. Owen J. Roberts School District, 430 Pa. 461, 244 A.2d 1 (1968).*fn13

Thus, the Commonwealth Court properly did not refrain from exercising its jurisdiction.

II.

The Department urges that the Hospital failed to establish entitlement to the relief granted pursuant to Pa.R.A.P. 1532(a). It has previously been stated:

[ 499 Pa. Page 51]

As a preliminary consideration, we recognize that on an appeal from the grant or denial of a preliminary injunction, we do not inquire into the merits of the controversy, but only examine the record to determine if there were any apparently reasonable grounds for the action of the court below. Only if it is plain that no grounds exist to support the decree or that the rule of law relied upon was palpably erroneous or misapplied will we interfere with the decision of the Chancellor. Intraworld Inc. v. Girard Trust Bank, 461 Pa. 343, 336 A.2d 316 (1975); Credit Alliance Corp. v. Philadelphia Minit-Man Car Wash Corp., 450 Pa. 367, 301 A.2d 816 (1973); Zebra v. Pittsburgh School District, 449 Pa. 432, 296 A.2d 748 (1972). "In order to sustain a preliminary injunction, the plaintiff's right to relief must be clear, the need for relief must be immediate, and the injury must be irreparable if the Page 51} injunction is not granted." Zebra v. Pittsburgh School District, 449 Pa. at 437, 296 A.2d at 750. (emphasis added). Roberts v. School District of Scranton, 462 Pa. 464, 469, 341 A.2d 475, 478 (1975). (emphasis added). Bell v. Thornburgh, 491 Pa. 263, 267-268, 420 A.2d 443, 445 (1980). (Emphasis added.)

It is significant that the Court's determination as to "any apparently reasonable grounds" must be predicated upon an independent examination of the record. Cf. Singzon v. Department of Public Welfare, 496 Pa. 8, 436 A.2d 125 (1981). And while we recognize the "clear right" requirement does not "mandate that one seeking a preliminary injunction establish [the] claim absolutely," Fischer v. Department of Public Welfare, 497 Pa. 267, 271, 439 A.2d 1172, 1174 (1982), the clear right, and appellee so concedes, must be prima facie established. New Castle Orthopedic Assoc. v. Burns, 481 Pa. 460, 392 A.2d 1383 (1978). The one seeking preliminary relief must be likely to prevail on the merits, and where the right of the party seeking the injunction is not clear, there is no reasonable ground to support the requested grant.

Whereas the constitutional issues raised without an administrative forum or procedure to adjudicate them relieved the Commonwealth Court of the exhaustion bar, the claims raised do not establish a sufficient likelihood of success on the merits to have warranted the granting of preliminary relief. See, Commonwealth v. Forbes Health Systems, 492 Pa. 77, 422 A.2d 480 (1980).*fn14

Moreover, the deleterious effect upon the public interest in the delivery of health services in this Commonwealth by disruption of the administration of the Act indicates that the "interest of justice" does not require the granting of special relief pursuant to Pa.R.A.P. 1532(a). We are mindful of Judge Craig's concern that the C.T. scanner should not stand

[ 499 Pa. Page 52]

    idle. However, we recognize that comprehensive health planning seeks to achieve economic and geographic efficacy in the expenditure of capital funds and the assumption of large additional operational costs. It further represents a legislative judgment that the provisions of the Act, in the long run, will be in the best interest of the health and welfare of all the citizens of this Commonwealth. The indiscriminate acquisition of costly, sophisticated medical equipment unnecessarily increases hospital costs and encourages over-utilization of that equipment.

It is to be anticipated that provisions for comprehensive health planning will necessarily, to some extent, curtail the judgment to be exercised by the individual health facilities. The decision to permit this intrusion upon the autonomy of the individual facilities represents a Congressional judgment that such a course of action is in the best interest of the citizens served by those facilities. Our legislature, by participating in the Congressional plan, has concurred in that judgment. Cf. North Carolina ex rel. Morrow v. Califano, supra. This is clearly an area of legislative concern and within that body's prerogative to establish the public policy of the Commonwealth in the area. Thus we find no prima facie right to relief and no reasonable ground for the granting of the special relief.

Attempts to minimize the magnitude of the question presented in this action by suggesting that it relates only to the short period of time between the actual acquisition of the C.T. scanner and the adoption of the new Omnibus Act thresholds is misleading. It is to be noted that appellant contends that a certificate of need would be required in any event under Section 448.701(a)(3) of the Act. Even assuming that appellee is correct in limiting any possible dereliction to the period prior to the establishment of the new thresholds, the gravity of that dereliction should not be minimized. Moreover, the conduct of appellee throughout the history of this action, such as their lack of candor in

[ 499 Pa. Page 53]

    supplying information to the Department regarding the acquisition of the C.T. scanner, is not such as to warrant equitable intervention.

Although the posture of this action in the Commonwealth Court has not reached the stage where appellant must file an answer where affirmative equitable defenses are properly raised, we are compelled to observe that, "He who comes into a court of equity must come with clean hands."

Accordingly, the Order of the Commonwealth Court is hereby vacated and the case remanded.

FLAHERTY, Justice, dissenting.

Relying on the reasoning set forth by Judge Craig below, I dissent from the opinion of the majority which serves only to further an inexhaustible bureaucracy at work.

The result reached by the majority requires that a powerful diagnostic tool lay idle while institutional wrangling inches the parties to a final outcome regarding the applicability of the Health Care Facilities Act, 35 P.S. § 448.101 et seq., to the hospital's acquisition of the scanner; this is a condonation of institutionalism in its darkest endeavor and one in which I cannot join.

HUTCHINSON, Justice, dissenting.

I agree with part one of the Majority Opinion holding judicial intervention by the Commonwealth Court was appropriate in this case. I dissent from that portion of the majority opinion which holds the Commonwealth Court erred in authorizing the hospital to use the C.T. Scanner pending final disposition of its certificate of need application

[ 499 Pa. Page 54]

    or the final disposition of its petition for review seeking declaratory and injunctive relief on constitutional grounds.

As the majority accurately states:

"In order to sustain a preliminary injunction, the plaintiff's right to relief must be clear, the need for relief must be immediate, and the injury must be irreparable if the injunction is not granted."

At 439 (citations omitted) (emphasis in original).*fn1

The majority also recognized that, the determination as to whether this standard is met is vested in the sound discretion of the Chancellor. See, supra at 439. On appeal from a decree granting or refusing a preliminary injunction, the appellant has a very heavy burden to overcome; such a decree will not be interferred with upon appellate review in the absence of a plain abuse of discretion by the court below. McDonald v. Noga, 393 Pa. 309, 141 A.2d 842 (1958). If we find the Chancellor's actions were reasonable we do not proceed to a consideration of the merits of the case unless reasons for the action of the court below do not exist or the rules of law relied on are palpably wrong or clearly inapplicable. Id. 393 Pa. at 311, 141 A.2d at 843 (citing Lindenfelser v. Lindenfelser, 385 Pa. 342, 123 A.2d 626 (1956)). See Bell v. Thornburgh, 491 Pa. 263, 420 A.2d 443 (1980); Intraworld Inc. v. Girard Trust Bank, 461 Pa. 343, 336 A.2d 316 (1975).

In the present case, the Chancellor, Judge Craig, concluded the purchase price of the C.T. Scanner was below the minimum of $600,000.00 established under the Federal Omnibus Budget Reconciliation Act of 1981 and that while the hospital may be penalized by the Department for purchasing the equipment prior to the federal amendment, it was no longer in violation of Section 35 P.S. 448.701(a)(2) and (d). Moreover, the Chancellor concluded the purchase was not a

[ 499 Pa. Page 55]

    new "health service" within the meaning of 35 P.S. 5448.701(a)(3).*fn2

An injunction may be granted where substantial legal questions must be resolved to determine the rights of the respective parties. Fischer v. Department of Public Welfare, 497 Pa. 267, 439 A.2d 1172 (1982); Valley Forge Historical Society v. Washington Memorial Chapel, 493 Pa. 491, 426 A.2d 1123 (1981). This Court need not decide whether the Chancellor's conclusions of law are erroneous at this stage of review. We need only find they were "reasonable". Since I believe his conclusions of law were reasonable, we should dismiss the Department's appeal without further consideration or expression of opinion upon the merits of the controversy as such review is appropriate only after a final hearing and decree in the Commonwealth Court. See generally 9 Standard Pa.Practice § 78, p. 393 (1962).

That majority also concludes there is no basis for equitable intervention because the hospital lacks "clean hands." The majority bases its conclusion on inferences drawn from the hospital's notice of intent to purchase the C.T. Scanner filed with the Department on August 4, 1981, in which the hospital failed to mention the contract, and from the hospital's letter of September 29, 1981, withdrawing its letter of intent without notifying the Department the contract had been entered into and substantially performed at that time. The two letters represent the only evidence the hospital deliberately attempted to mislead the Department. Based on these same letters, the chancellor declined to attribute an evil intent to the hospital's actions.

While this Court is able to draw its own inference, deductions and conclusions based on the facts of record, see W. Penn Twp. School District v. I.B. of E.W., 396 Pa. 408, 145 A.2d 258 (1958), I do not believe we should find the Chancellor was unreasonable in reaching a different conclusion.

[ 499 Pa. Page 56]

Finally, although I am troubled by the hospital's unilateral efforts to acquire the C.T. Scanner without a certificate of need prior to the increase in the threshold, the integrity of the statutory scheme could be preserved by the imposition of penalties pursuant to 35 P.S. § 448.603 for the period between July 29, 1981, when the purchase order was signed, until October 1, 1982, the effective date of the increased threshold.


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