County of Chemung v. Shah

expenses (for example, roughly .25%), with a maximum individualized county cap, based on the Medicaid expenditures made by or on behalf of each county during the 2005 base year, after deducting any overburden reimbursement payments made to the county.

Thereafter, DOH interpreted the Cap Statute as imposing a specific annual contribution amount on the counties that they could not reduce by seeking payment for outstanding overburden reimbursements, and DOH denied overburden reimbursement claims submitted after the enactment of the Cap Statute. Niagara, Herkimer, and St. Lawrence Counties each brought CPLR article 78 proceedings challenging the denials. Supreme Court granted the Counties partial relief and, when DOH appealed, the Appellate Division held that DOH’s application of the Medicaid Cap Statute to the Counties’ claims “constituted an impermissible retroactive application of the statute” (Matter of County of St. Lawrence v Daines, 81 AD3d 212 , 214 [3d Dept 2011], lv denied 17 NY3d 703 [2011]; see also Matter of County of Herkimer v Daines, 60 AD3d 1456 , 1457 [4th Dept 2009], lv denied 13 NY3d 707 [2009]; Matter of County of Niagara v Daines, 60 AD3d 1460 , 1461 [4th Dept 2009], lv denied 13 NY3d 708 [2009]).

On the heels of the Counties’ success in the courts, the legislature enacted an amendment in 2010 that DOH interpreted as barring the Counties from seeking past overburden reimbursements. Another round of litigation ensued, and the Appellate Division ultimately rejected the State’s statutory construction and annulled DOH’s denials of overburden claims, concluding that the 2010 amendment did not clearly and unambiguously extinguish the State’s obligation to pay the pre-2006 claims (see Matter of County of St. Lawrence v Shah, 95 AD3d 1548 , 1548, 1551-1553 [3d Dept 2012]; Matter of County of Niagara v Daines, 91 AD3d 1288 , 1290 [4th Dept 2012], lv denied 94 AD3d 1481 [2012]).

While these appeals were pending, the legislature enacted section 61 as part of the 2012-2013 executive budget, which expressly provides that “ [notwithstanding the provisions of section 368-a of the social services law or any other contrary provision of law, no reimbursement shall be made for social services districts’ claims submitted on and after the effective date of this paragraph, for district expenditures incurred prior to January 1, 2006” (L 2012, ch 56, § 1, part D, § 61). Section 61, which was proposed on January 17, 2012 and passed on

March 30, 2012, had an effective date of April 1, 2012. According to the State Executive Budget Memorandum, section 61 was intended:

“to clarify that local governments cannot claim for overburden expenses incurred prior to January 1, 2006, when the ‘local cap’ statute that limited local contributions to Medicaid expenditures took effect. This is necessary to address adverse court decisions that have resulted in State costs paid to local districts for pre-cap periods, which conflict with the original intent of the local cap statute.” (Mem in Support, 2012-13 NY State Executive Budget, Health and Mental Hygiene Article VII Legislation at 18.)

When the 2012 amendment was passed, overburden claims could be up to 28 years old.

Shortly before the April 1st effective date, St. Lawrence and Chemung Counties submitted claims for millions of dollars of pre-2006 overburden reimbursements. DOH paid these claims in 2012 but rejected claims from several upstate counties, including additional claims from St. Lawrence and Chemung Counties submitted after April 1, 2012.

St. Lawrence County commenced three combined CPLR article 78 proceedings and actions for declaratory judgment (for each claim rejected by DOH). The County sought to annul DOH’s decision to deny reimbursement for claims submitted after April 1, 2012 as arbitrary and capricious and to compel DOH to approve and pay the claims. It further requested that the court declare section 61 unconstitutional for depriving the County of its vested property rights, and impose a constructive trust over the funds that DOH was allegedly obligated to reimburse. DOH moved and the County cross-moved for summary judgment on the declaratory judgment and state law claim. Supreme Court concluded that the County had a vested right to reimbursement for the overburden expenditures which could not be extinguished. It declared section 61 unconstitutional, annulled DOH’s denials of the County’s claims, and directed DOH to pay the claims submitted by the County (Matter of County of St. Lawrence v Shah, Sup Ct, St. Lawrence County, July 31, 2013, Demarest, J., index No. 140712). Supreme Court also granted the County’s request for mandamus relief and held that DOH has a unilateral obligation to calculate and reimburse the County for the pre-2006 overburden expenditures.

The Third Department modified Supreme Court’s order, and held section 61 constitutional, construing it as a statute of limitations that did not extinguish the counties’ substantive rights but merely ended the time for submission of their claims. As a matter of procedural due process, the Court imposed a six-month grace period from the date of its decision for submission of the counties’ pre-2006 claims (Matter of County of St. Lawrence v Shah, 124 AD3d 88 , 92-93 [3d Dept 2014]). The Court also upheld the grant of mandamus relief, which required DOH to identify, verify and pay all overburden expenditures incurred by the County before 2006 (id. at 94).

In the summer of 2013, Chemung County commenced a combined CPLR article 78 proceeding and action for declaratory judgment seeking similar relief to that sought in the St. Lawrence litigation. Supreme Court held in Chemung County’s favor on the reasoning of the decision in the St. Lawrence proceedings. On appeal, the Third Department applied its St. Lawrence decision and reached the same conclusion (Matter of County of Chemung v Shah, 124 AD3d 963 [3d Dept 2015]).

Shortly before the decision in St. Lawrence, the Fourth Department held in an article 78 proceeding and declaratory judgment action commenced by Niagara County that section 61 applies retroactively to extinguish the pre-2006 overburden claims. However, the Court remitted for consideration of any properly alleged State challenges to the County’s argument that section 61 violated due process by extinguishing its vested rights in the claims (Matter of County of Niagara v Shah, 122 AD3d 1240 [4th Dept 2014]).

Before a decision was rendered on that issue in the Niagara County litigation, and in nearly identical actions commenced by Chautauqua County and Jefferson County, the Fourth Department held that the State waived its defense that the Counties lacked capacity to assert constitutional challenges against the State and state legislation. However, the Court determined that the Counties were not persons within the meaning of the Due Process Clauses of the Federal and State Constitutions, and therefore failed to establish the unconstitutionality of section 61 (Matter of County of Chautauqua v Shah, 126 AD3d 1317 [4th Dept 2015]; Matter of County of Jefferson v Shah, 126 AD3d 1322 [4th Dept 2015]; Matter of County of Oneida v Shah, 128 AD3d 1381 [4th Dept 2015]; Matter of County of Genesee v Shah, 128 AD3d 1380 [4th Dept 2015]; Matter of County of Cayuga v Shah, 129 AD3d 1503 [4th Dept

2015]; Matter of County of Monroe v Shah, 129 AD3d 1505 [4th Dept 2015]). Those Counties appealed to this Court.

We granted the State leave to appeal in Matter of County of Chemung v Shah ( 124 AD3d 963 [3d Dept 2015]) and County of St. Lawrence ( 124 AD3d 88 [3d Dept 2014]) to resolve the divergence and apparent conflict in the Appellate Division (Matter of County of Chemung v Shah, 25 NY3d 903 [2015]; Matter of County of St. Lawrence v Shah, 25 NY3d 903 [2015]).

H

On appeal to us, the Counties assert that they possess constitutionally protected vested rights in the unpaid funds which cannot be extinguished by retroactive application of section 61 without violating their due process rights. Under this interpretation of the statutory scheme, the Counties have no burden to demand payment and the State must pay any overburden reimbursements due under Social Services Law § 368-a (1) (h) (i), regardless of whether the Counties submitted claims before April 1, 2012, or at any time thereafter. This would mean that the State has an ongoing obligation, terminated only by payment of outstanding reimbursements, irrespective of the age of the claim.

Alternatively, the Counties argue section 61 may be interpreted to avoid any constitutional deficiencies as a statute of limitations that sets a deadline for the submission of claims without extinguishing the Counties’ substantive rights, but that the deadline set forth in section 61 must be extended to provide an adequate period in which to submit their remaining claims. Lastly, the Counties argue that mandamus relief is not only appropriate but necessary to compel the State’s compliance with its statutory duty under Social Services Law § 368-a.

The State responds that the Counties fail to present a viable due process challenge to the constitutionality of section 61. The State argues the Counties are neither “persons” guaranteed due process in the constitutional sense, nor are they holders of any rights in a particular form of Medicaid allocation. Regardless, according to the State, the Counties have not been unfairly harmed by its decision to replace one Medicaid expense repayment system with another because the Cap Statute provides greater financial benefits to the counties. The State maintains that the legislature responded to the rapidly increasing Medicaid costs with a ceiling on the counties’ financial exposure, essentially providing them with a fixed dollar amount

rather than a fixed, percentage of overall costs. Under the Cap Statute, the total amount the counties could pay was limited, but part of this legislative “deal” was that the counties would be required to pay their full cap amount each year, without any credit for reimbursements owed. The State also claims that the Counties lack a clear legal right to the mandamus relief granted here, specifically a massive, retrospective review by the State of 22 years of Medicaid expenditures.

The litigation posture of these appeals presents insurmountable obstacles to our consideration of some of the State’s objections to the Counties’ ability to pursue its challenge to section 61. As the State concedes, it waived any argument that the Counties are without capacity to sue the State under the general rule that municipalities are “creatures or agents of the State,” without authority to “contest the actions of their principal or creator affecting them in their governmental capacity or as representatives of their inhabitants” (City of New York v State of New York, 86 NY2d 286 , 290 [1995]; see also Williams v Mayor of Baltimore, 289 US 36 , 40 [1933]). The State’s waiver encompasses any challenge to the Counties’ argument that they hold a proprietary interest in the overburden reimbursements (see City of New York, 86 NY2d at 291-292 ). The State also failed to preserve its argument that the Counties lack a substantive due process right to the monies they now claim because the municipalities are not persons within the meaning of the Federal and State Due Process Clauses.

We now turn to the merits of the Counties’ challenge to the State’s interpretation of section 61. Five principles guide our analysis. First, “[i]t is well settled that acts of the Legislature are entitled to a strong presumption of constitutionality” (Cohen v Cuomo, 19 NY3d 196 , 201 [2012]). This presumption can only be overcome when it can be shown beyond a reasonable doubt that it conflicts with a fundamental law, and “until every reasonable mode of reconciliation of the statute with the Constitution has been resorted to, and reconciliation has been found impossible” (Matter of Fay, 291 NY 198 , 207 [1943]). Second, “statutes relating to the same subject matter . . . must be read together and applied harmoniously and consistently” (Alweis v Evans, 69 NY2d 199 , 204 [1987]). Third, we aim to effectuate the intent of the legislature, and the clearest indicator of legislative intent is the plain meaning of the statutory language (Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577 , 583 [1998]). Fourth, any claim can be time-barred,

including constitutional claims (Block v North Dakota ex rel. Board of Univ. and School Lands, 461 US 273 , 292 [1983]). Fifth, extensive arguments about a cost allocation scheme’s economic and political wisdom is outside the scope of judicial review (Matter of Jeter v Ellenville Cent. School Dist., 41 NY2d 283 , 287 [1977]). As the Supreme Court has held,

“[w]hether the enactment is wise or unwise, whether it is based on sound economic theory, whether it is the best means to achieve the desired result, whether, in short, the legislative discretion within its prescribed limits should be exercised in a particular manner, are matters for the judgment of the legislature, and the earnest conflict of serious opinion does not suffice to bring them within the range of judicial cognizance.” (Chicago, B. & Q. R. Co. v McGuire, 219 US 549 , 569 [1911].)

In other words, the counties cannot challenge the State’s decision to prospectively reallocate Medicaid payments.

With these principles in mind, we are able to resolve these appeals without deciding between the parties’ competing positions as to whether section 61 extinguishes substantive claims, or merely sets forth the outer temporal limit during which counties may challenge the State’s initial overburden payment determination to seek additional reimbursement. If we assume, arguendo, that the counties have a vested right to any reimbursements that accrued before 2006, then under any possible theory presented in these appeals, section 61 is constitutional.

By its express language that “no reimbursement shall be made for social services districts’ claims submitted on and after the effective date of this paragraph, for district expenditures incurred prior to January 1, 2006,” section 61 terminates the submission of pre-2006 claims past its effective date. This legislatively-mandated cutoff date was a response to judicial misinterpretations of prior statutory efforts to end the claims process which was administratively instituted by DOH under the State’s former Medicaid allocation regime (Mem in Support, 2012-13 NY State Executive Budget, Health and Mental Hygiene Article VII Legislation at 18 [section 61 necessary to address adverse court decisions that conflict with statute’s original intent]). Once the State complied with its statutory obligation under Social Services Law § 368-a (1) (h) (i) to pay the counties for overburden reimbursements, it was fully

consistent with the prior mandatory reimbursement scheme for the legislature to impose a deadline on claims for unpaid funds. That deadline was neither in conflict with a fundamental law nor our constitutional principles. Just as the Counties cannot be heard to complain that the legislature replaced one Medicaid allocation scheme with another, thus redefining the counties’ expense burden, so too are the counties without recourse when the legislature imposes a deadline on the counties’ submission of claims for overburden reimbursements, thereby closing the door on pre-2006 claims.

There is also no merit to the Counties’ claim that procedural due process mandates that section 61 be extended beyond its effective date in order to protect their vested rights in any unpaid funds. It is well established that procedural due process guarantees notice and an opportunity to be heard before a claimant is deprived of liberty or a recognized property interest (Matter of Quinton A., 49 NY2d 328 , 334 [1980]). “[N]o one rule as to the length of time which will be deemed reasonable can be laid down for the government of all cases alike. Different circumstances will often require a different rule. What would be reasonable in one class of cases would be entirely unreasonable in another” (McGahey v Virginia, 135 US 662 , 707 [1890]). The question distills to what is reasonable under the circumstances (Terry v Anderson, 95 US 628 , 633 [1877]). In deciding the Counties’ argument for additional time to submit claims, our analysis focuses on the overburden reimbursement claims process, the litigation following the enactment of the Cap Statute, and the question of whether the counties have been denied the opportunity to pursue claims before enactment of the statutory prohibition on submissions.

As the record establishes, as far back as 1988 the counties were on notice under Social Services Law § 368-a (1) (h) (i) and the State’s regulations that the State was obliged to pay overburden reimbursements, and that the counties could pursue claims for any amounts they believed they were still owed after payment. The counties had information available to pursue those claims in the decades leading up to the passage of section 61. For years, the counties knew on a weekly basis the amount the State was taking to satisfy the counties’ local share of Medicaid expenses, and the State provided the counties with quarterly reports and other documents by which the counties could determine if they had a potential claim. Only after the enactment of the Cap Statute, and in reliance on its interpreta

I—I HH I—I

We also conclude that mandamus relief is unwarranted. This Court has repeatedly stated that mandamus is an “extraordinary remedy” that is “available only in limited circumstances” (Klostermann v Cuomo, 61 NY2d 525 , 537 [1984]). “Mandamus is used to enforce an administrative act positively required to be done by a provision of law” (Matter of Walsh v LaGuardia, 269 NY 437 , 441 [1936]). It is considered extraordinary because the judiciary is loathe to interfere with the executive department’s exercise of its official duties, unless the department has failed to perform a specific act (id.). Here, DOH made its initial determinations and reimbursed counties quarterly, and then paid out all claims submitted prior to the April 1, 2012 deadline. The Social Services Law requires no more and the Counties are not entitled to this relief. Moreover, ordering mandamus is inconsistent with our conclusion that section 61 is constitutional.

TV.

Accordingly, in Matter of County of Chemung and Matter of County of St. Lawrence, the orders insofar as appealed from should be reversed, without costs, the petitions dismissed in their entirety and a declaration made in favor of respondents Nirav R. Shah, M.D., M.P.H., as Commissioner of the New York State Department of Health, et al., that section 61 of part D of section 1 of chapter 56 of the Laws of 2012 has not been shown to be unconstitutional; in Matter of County of Chautauqua, Matter of County of Jefferson, Matter of County of Oneida, Matter of County of Genesee, Matter of County of Cayuga, and Matter of County of Monroe, the orders insofar as appealed from should be affirmed, without costs.

Garcia, J. (concurring). While I am in general agreement with the result arrived at by the majority, I reach that conclusion by a somewhat different analysis that I believe is more in line with the unique facts and procedural issues we confront here.

These cases present the conflicting interpretations of section 61 (L 2012, ch 56, § 1, part D, § 61) by the Third and Fourth

Departments. The Third Department held that section 61 did not retroactively extinguish the counties’ right to reimbursement for certain Medicaid overpayments—or “overburden expenditures”—under Social Services Law § 368-a (1) (h) and instead that Court treated section 61 as a statute of limitations on the payment of claims for pre-2006 reimbursement (see Matter of County of St. Lawrence v Shah, 124 AD3d 88 [3d Dept 2014]). In light of this interpretation, the Third Department imposed a six-month grace period for the submission of reimbursement claims and granted mandamus relief requiring the Department of Health to identify, calculate, and pay outstanding overburden expenditures. Conversely, the Fourth Department held that section 61 unequivocally extinguished the counties’ right to pre-2006 reimbursement but later held that the counties could not challenge this action on due process grounds, despite the New York State Department of Health’s (DOH) waiver of the capacity defense, because they lack the “personhood” necessary to do so (see Matter of County of Niagara v Shah, 122 AD3d 1240 [4th Dept 2014]; Matter of County of Chautauqua v Shah, 126 AD3d 1317 [4th Dept 2015]). I would reject the Third Department’s interpretation of section 61 as a statute of limitations, adopt the Fourth Department’s interpretation of the statute but reject its person-hood analysis, and hold that the statute is constitutional under a vested due process rights analysis.

With respect to the Fourth Department’s determination that section 61 extinguishes the counties’ right to reimbursement, I agree that section 61 evinces a clear intent to foreclose any pre-2006 reimbursement claim. The language explicitly states that the statute is being enacted “notwithstanding” Social Services Law § 368-a (1) (h). As a result, “no reimbursement shall be made for social services districts’ claims submitted on and after [the amendment’s effective date], for district expenditures incurred prior to January 1, 2006 [including overburden expenditures]” (L 2012, ch 56, § 1, part D, § 61).

This interpretation of the plain language of the statute is likewise supported by the tortured litigation history that led to its enactment. The legislature first enacted the Medicaid Cap Statute (Cap Statute) in 2005 (L 2005, ch 58, § 1, part C, § 1), and litigation ensued following its passage. After courts determined that the Cap Statute did not extinguish the coun

undefined “personhood” requirement as a prerequisite to sue on due process grounds. The only support given for this interpretation is the reference to a “substantive right” to raise constitutional matters in Matter of Jeter v Ellenville Cent. School Dist. ( 41 NY2d 283 , 287 [1977]), but a fair reading of that case demonstrates that the concern was capacity, not “personhood.” As a result, we can assume under the unique facts of this case that the counties had a vested property right in the refund of money spent to cover costs properly allocated to the State (see Alliance of Am. Insurers v Chu, 77 NY2d 573 , 585-586 [1991]).

The waiver of the capacity defense and the determination that there is no additional personhood requirement, and an assumption that a vested property right exists in refunds owed, makes necessary a vested due process rights analysis to determine whether section 61 is constitutional. This straightforward analysis examines “fairness to the parties, reliance on pre-existing law, the extent of retroactivity and the nature of the public interest to be served by the law” (Alliance of Am. Insurers, 77 NY2d at 586 ).

I would uphold the statute’s constitutionality on the basis of such an analysis. The new payment system of section 61 provides some financial benefit to the counties in exchange for extinguishing the prior claims and in this way treats the counties fairly. The fact that those counties might disagree with the financial calculation is immaterial. Moreover, the economic or political wisdom of that calculation is beyond our review (see Jeter, 41 NY2d at 287 ). The counties had no right to rely on the preexisting payment system. Since the Cap Statute was enacted in 2005, the counties were on notice of changes in the reimbursement regime, and years of litigation and failed statutory amendments demonstrated DOH’s plain intent to extinguish pre-2006 reimbursement claims. The statute is minimally retroactive, applying only to those pre-2006 claims that were not brought by 2012. Moreover, section 61 serves the public interest in overhauling a system fraught with error and inefficiencies that still saw uncertainty with respect to the amount of outstanding claims—some potentially going back decades.

Enactment of section 61 extinguishing the counties’ pre-2006 claims was not unconstitutional. Because there is no need to read in any “statute of limitations,” there is also no need to provide a grace period or grant mandamus relief. Accordingly, I agree with the Fourth Department’s interpretation of section 61 as extinguishing the counties’ right to pre-2006 reimbursement, and hold that there was no due process violation in that legislative action.

In Matter of County of Chemung v Shah: Order, insofar as appealed from, reversed, without costs, petition dismissed in its entirety and a declaration made in favor of respondents Nirav R. Shah, M.D., M.P.H., as Commissioner of the New York State Department of Health, et al., that section 61 of part D of section 1 of chapter 56 of the Laws of 2012 has not been shown to be unconstitutional.

Opinion by Judge Rivera. Chief Judge DiFiore and Judges Pigott and Abdus-Salaam concur. Judge Garcia concurs in result in a separate concurring opinion. Judges Stein and Fahey taking no part.

In Matter of County of St. Lawrence v Shah: Order, insofar as appealed from, reversed, without costs, petitions dismissed in their entirety and a declaration made in favor of respondents Nirav R. Shah, M.D., M.P.H., as Commissioner of the New York State Department of Health, et al., that section 61 of part D of section 1 of chapter 56 of the Laws of 2012 has not been shown to be unconstitutional.

In Matter of County of Chautauqua v Shah, Matter of County of Jefferson v Shah, Matter of County of Oneida v Shah, Matter of County of Genesee v Shah, Matter of County of Cayuga v Shah and Matter of County of Monroe v Shah: Order, insofar as appealed from, affirmed, without costs.