                                    IN THE DISTRICT COURT OF APPEAL
                                    FIRST DISTRICT, STATE OF FLORIDA

BAKER COUNTY MEDICAL                NOT FINAL UNTIL TIME EXPIRES TO
SERVICES, INC., d/b/a ED            FILE MOTION FOR REHEARING AND
FRASER MEMORIAL                     DISPOSITION THEREOF IF FILED
HOSPITAL,
                                    CASE NO. 1D14-4988
      Appellant,

v.

STATE OF FLORIDA,
AGENCY FOR HEALTH CARE
ADMINISTRATION, and WEST
JACKSONVILLE MEDICAL
CENTER, INC., a foreign
corporation,

      Appellee.

_____________________________/

Opinion filed October 15, 2015.

An appeal from the Circuit Court for Leon County.
James C. Hankinson, Judge.

Geoffrey D. Smith, Susan C. Smith, and Kara L. Gross, of Smith & Associates,
Tallahassee, for Appellant.

Tracy Cooper George, Chief Appellate Counsel, Agency for Health Care
Administration, Tallahassee; Stephen A. Ecenia, J. Stephen Menton, and R. David
Prescott, of Rutledge Ecenia, P.A., Tallahassee, for Appellee.
MAKAR, J.,

      Baker County Medical Services, which operates Ed Fraser Memorial

Hospital in Macclenny, Florida, contests the legality of the duration of the term of

a certificate of need issued to West Jacksonville Medical Center, Inc., for the

construction of a new 85-bed hospital in western Duval County. The certificate,

which was issued in 2010 under the terms of a settlement agreement arising from

administrative litigation between West Jacksonville and a nearby competitor, St.

Vincent’s Hospital, would not become effective until mid-2013 with licensure to

follow no earlier than December 2016. The new hospital has not been built; indeed,

land has yet to be acquired for the project. Fraser Hospital, which was not a party

in the administrative forum, filed its legal challenge in the circuit court, which

dismissed it with prejudice as an impermissible collateral attack on the certificate’s

issuance, leading to this appeal. We must decide whether the challenge in circuit

court is permissible.

                                          I.

      Certificates of need entitle their holders to build certain types of “health-

care-related project,” such as hospitals, see § 408.036(1)(a), Fla. Stat. (“Projects

subject to review; exemptions”), the ostensible purpose being to contain health

care costs by allowing for government coordination and planning in place of what

would otherwise be a free market. See generally National Conference of State

                                          2
Legislatures,    Certificate   of    Need:     Health     Laws     and     Programs,

http://www.ncsl.org/research/health/con-certificate-of-need-state-laws.aspx

(overview of certificate of need programs nationwide) (last visited August 4,

2015). Absent a certificate, a competing company may not enter the marketplace

unless it demonstrates administratively the need for a proposed facility and

receives its own certificate of need; to do otherwise is a second degree

misdemeanor. § 408.041, Fla. Stat.        Incumbents are shielded partially from

economic competition for the duration of their certificates. As a result, litigation

over certificates of need can be as intense as market competition itself, resulting in

lobbying and litigation to prevent market entry to retain the competitive advantages

that incumbent certificate holders possess. See, e.g., Hosp. Bldg. Co. v. Trs. of Rex

Hosp., 425 U.S. 738, 738 (1976) (antitrust action by hospital alleging competing

hospital violated federal antitrust laws by conspiracy to block its relocation and

expansion stated claim affecting interstate commerce); Kottle v. Nw. Kidney Ctrs.,

146 F.3d 1056 (9th Cir. 1998) (lobbying efforts of competitor to prevent applicant

from receiving certificate of need protected as constitutionally-permissible

petitioning of government); St. Joseph’s Hosp., Inc. v. Hosp. Corp. of Am., 795

F.2d 948, 955 (11th Cir. 1986) (misrepresentations to state health care agency that

passes upon certificate applications actionable under antitrust laws); see generally

Patrick John McGinley, Beyond Health Care Reform: Reconsidering Certificate of

                                          3
Need Laws in a “Managed Competition” System, 23 Fla. St. U. L. Rev. 141

(Summer 1995) (discussing the conflict between certificates of need and managed

competition); Scott D. Makar, Anticompetitive Actions in the Administrative

Forum: Antitrust and State Law Remedies, Fla. B.J., Feb. 1992, at 33, 37 (noting

that “persons aggrieved by anticompetitive administrative actions may consider

state administrative law remedies that provide limited remedies for ‘improper’ or

‘frivolous’ administrative actions.”).

      Florida’s Agency for Health Care Administration, universally known as

AHCA, administers the State’s certificate of need program. Almost all trial-level

litigation involving certificates of need occurs in the administrative forum before

an administrative law judge whose orders are subject to AHCA’s approval. This

case is different because Fraser Hospital did not participate in the administrative

proceedings that ultimately resulted in AHCA’s issuance of the certificate of need

at issue. Rather, Fraser Hospital initiated a circuit court proceeding in December

2013 without having participated or intervened in the administrative process that

terminated three years earlier. Because dismissal of Fraser Hospital’s amended

complaint is the focus of our inquiry, we recite its relevant allegations.

      In 2009, West Jacksonville sought a certificate of need for construction of a

new hospital within the sub-district encompassing a number of existing hospitals,

including Fraser Hospital. Litigation ensued, initiated by St. Vincent’s Hospital

                                           4
which protested the need for the certificate. Within the year, West Jacksonville and

St. Vincent’s entered into a settlement agreement in November 2010, which was

presented to and approved by AHCA, resulting in the issuance of a certificate of

need that included the requirement that its “validity period shall not commence to

run until June 1, 2013.” Existing statutory law provided that the validity period for

a certificate of need expired 18 months after issuance, and could be extended only

in limited circumstances such as when litigation or construction results in delays

(discussed later). In addition, the certificate at issue specified that “[n]either

[AHCA] nor West Jacksonville will license the hospital . . . prior to December 1,

2016.” In effect, a six-year period from certificate issuance to hospital licensure

was established administratively pursuant to the terms of the settlement agreement.

      Fraser Hospital asserted that AHCA had no statutory authority to delay the

validity period of the certificate, and that none of the statutory grounds for

extensions had been sought. Rather, the economic upturn that made the new

hospital appear viable was followed by a severe economic downturn that made it

economically infeasible unless it invaded the markets of neighboring hospitals,

such as Fraser Memorial (and St. Vincent’s).

      In its initial complaint, Fraser Hospital sought a declaratory judgment that

the certificate at issue, by the terms of the applicable statute, must terminate after

18 months and thereby expired on or about June 7, 2012. It also claimed that

                                          5
AHCA lacked the statutory authority to extend or delay the start of the validity

period of the certificate. Rather than extend or delay the start of the validity period,

Frasier Hospital contended that the only appropriate process would be for West

Jacksonville to initiate a new request for a certificate of need. Its amended

complaint was identical to the first except for the allegations that AHCA’s

authority was statutorily limited and that the validity period of a certificate of need

set by statute could not be extended by agreement or stipulation of the parties in an

administrative proceeding.

      Both West Jacksonville and AHCA moved to dismiss the amended

complaint, pointing out that Fraser Hospital failed to participate in the

administrative proceedings thereby waiving its only opportunity to contest the

lawfulness of the certificate’s duration; dismissal was also appropriate because the

judicial relief sought in the circuit court was an inappropriate vehicle to challenge

an administratively-issued certificate of need. Whatever claim Fraser Hospital

made about the validity of the certificate’s duration had to be asserted in the

administrative forum, making a declaratory judgment action an improper collateral

attack on AHCA’s final order. The trial court, agreeing with West Jacksonville and

AHCA, held in relevant part that a “declaratory judgment is an unauthorized

collateral attack on final agency action. [AHCA] acted in accordance with its

statutory authority in entering the Final Order and Settlement Agreement granting

                                           6
[the certificate] and extending the validity period of [the certificate]. See

§ 408.040(2)(c), Fla. Stat. [AHCA] did not act without colorable statutory

authority in issuing the Final Order.” This appeal ensued.

                                          II.

      In assessing the viability of Fraser Hospital’s action in circuit court, the trial

court recognized the heavy burden to be overcome to allow a collateral attack

against final agency action; policy considerations—such as the finality of

judgments—strongly disfavor such actions absent a showing that an agency’s

challenged action is so lacking in statutory authority that an exception should be

made. Dep’t. of Envtl. Reg. v. Falls Chase Special Taxing Dist., 424 So. 2d 787,

794 (Fla. 1st DCA 1982) (“Only in exceptional cases may the courts assume

jurisdiction to render declaratory and/or injunctive relief without requiring

exhaustion of administrative remedies. A challenge to agency jurisdiction on

persuasive grounds is a widely recognized exception to the exhaustion doctrine.”)

(citation and footnote omitted); Dep’t of Health v. Curry, 722 So. 2d 874, 878 (Fla.

1st DCA 1998) (“The doctrine which requires the exhaustion of administrative

remedies is based upon considerations of policy, rather than of jurisdiction.”)

(citation omitted). This judicially-created exception provides that it is permissible

to pursue declaratory relief in a circuit court—without first pursuing and

exhausting administrative remedies—if “an agency acts without colorable statutory

                                          7
authority that is clearly in excess of its delegated powers.” Dep’t of Agric. &

Consumer Servs., 792 So. 2d 539, 546 (Fla. 4th DCA 2001); e.g., Curry, 722 So.

2d at 878 (outlining the basis for the exception, providing that when “an agency

acts without the benefit of any rule, and in a manner clearly in excess of its

statutory authorization, the action is invalid . . . .”); Falls Chase, 424 So. 2d at 796

(applying exception where DEP had no jurisdiction to regulate dredge and fill

activities on land in question, and affirming declaratory action granted in favor of

plaintiffs).

       Our task here is to determine whether AHCA’s actions, as alleged in Fraser

Hospital’s amended complaint, are clearly beyond the statutory boundaries the

Legislature has established for the regulation of certificates of need, thereby

allowing direct resort to the circuit court. See Falls Chase, 424 So. 2d at 794-95

(“judicial intervention with administrative action is justified only in those instances

where the invalidity of the administrative act is not subject to reasonable

differences of opinion.”) (quoting Odham v. Foremost Dairies, Inc., 128 So. 2d

586, 592-93 (Fla. 1961)). The starting point is the statutory framework that

establishes the duration of certificates of need and any exceptions that give AHCA

room to delay their issuance or extend them beyond their termination date.

       No one disputes that the certificate at issue is subject to the statute providing

that “[u]nless the applicant has commenced construction . . . a certificate of need

                                           8
shall terminate 18 months after the date of issuance . . . .” § 408.040(2)(a), Fla.

Stat. (2010) (emphasis added). Fraser Hospital points to this definitive statutory

termination date as its first building block, the second being that AHCA cannot

point to a statute that gives it “colorable” authority to delay or extend this 18

month period. AHCA and West Jacksonville counter that sections 408.040(2)(c),

408.015(2)-(3), and 120.57(4), Florida Statutes, collectively provide authority for

AHCA’s actions. Turning to the trial court’s order, we first address whether

AHCA had the statutory authority to extend the time for when the certificate’s

validity period commenced under section 408.040(2)(c), which states:

     (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.

§ 408.040(2)(c), Fla. Stat. (emphasis added). 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. See, e.g., Health Quest

Corp. IV v. Dep’t of HRS, 593 So. 2d 533, 535 (Fla. 1st DCA 1992) (applying

litigation exception).

      As to the former, the only litigation that could have formed the basis for

delaying the “commencement of the project” was the administrative litigation

between West Jacksonville and St. Vincent’s. But that dispute was resolved prior
                                         9
to, and formed the basis of, the settlement agreement upon which the certificate

was ultimately issued. Because that proceeding was complete before the certificate

issued, it could not form the basis for a subsequent delay in commencement of the

hospital project. And the current litigation, which post-dated the certificate’s

issuance by three years, could not be the basis for the initial lengthy duration

established in the certificate. Simply because the private parties’ settlement arose

out of litigation doesn’t give the agency license to invoke this statutory exception;

even if it was applicable, AHCA’s rules only permit up to a 60-day extension of

the validity period per request, reflecting that legitimate extensions for litigation or

government action/inaction must be supportable and of limited duration. See Fla.

Admin. Code R. 59C-1.018(3)(a) (2015).

      What’s more, the recitals in the settlement agreement, signed by the private

parties and AHCA, make clear that it was not the litigation itself, which lasted less

than a year, that created concern for the commencement of the project; instead, it

was “the current condition of the economy, and the time required for planning,

permitting, and construction of a general hospital” that ostensibly made it

necessary for West Jacksonville to “schedule the opening [of its hospital]

approximately six years into the future . . . .” In other words, the economic

downturn spawned by the Great Recession was the precipitating event—not

litigation or some identifiable governmental action/inaction—that raised the

                                          10
specter of potentially delayed construction for which market entry six years down

the road was deemed appropriate.

      In the midst of the financial crisis and its effects on health-care-related

projects, the Legislature in its 2009 session amended section 408.040(2)(a) to

provide that certificates of need “issued on or before April 1, 2009, shall terminate

36 months after the date of issuance.” § 408.040(2)(a), Fla. Stat. See Ch. 2009-223,

Laws of Fla., § 14 (amending section 408.040, Fla. Stat. (2009)).1 Stated

differently, the Legislature provided relief for those holding certificates issued

before April 1, 2009—who presumably had the economic rug pulled out from

under them—by statutorily giving them 18 additional months for their validity

periods. This statutory accommodation, however, was not extended to those

entities, such as West Jacksonville, who obtained certificates after April 1, 2009.

The Legislature’s grant of a specific statutory exemption to one class of certificate

holders strongly suggests that no statutory authority exists for all others, else

AHCA could simply delay or alter the terms of any certificate, whenever issued

and for whatever length, for economic reasons. See, e.g., Fla. Virtual Sch. v. K12,

Inc., 148 So. 3d 97, 99-100 (Fla. 2014) (“An agency created by statute does not


1
  For a very brief time, from May 19, 2009 to June 30, 2009, the Legislature
extended the validity period for certificates of need to 36 months without
qualification. See Ch. 2009-45, Laws of Florida, § 1 (amending section 409.040,
Fla. Stat. (2009)). Chapter 2009-223 changed that effective July 1, 2009, to apply
to only pre-April 1, 2009 certificates.
                                        11
possess any inherent powers. Rather, the agency is limited to the powers that have

been granted, either expressly or by necessary implication, by the statute that

created the agency.”); see also Dialysis Solution, LLC v. Mississippi State Dep’t.

of Health, 31 So. 3d 1204, 1213-14 (Miss. 2010) (statute limiting duration of

certificates of need “indicates that the Legislature wanted to control through statute

the time period for which a CON could be outstanding. Presumably, the

Legislature would not have enacted [the statute] if it had intended CONs to remain

valid indefinitely or until the [agency] chose to revoke them.”).

      West Jacksonville and AHCA point to the breadth of the agency’s powers,

which include the authority to enter into “contracts and execute all instruments

necessary or convenient for carrying out its business” and “agreements with any

. . . private individual, partnership, firm, corporation, association, or other entity.”

§§ 408.15(2) & (3), Fla. Stat.; see also § 120.57(4), Fla. Stat. (“Informal

disposition.--Unless precluded by law, informal disposition may be made of any

proceeding by stipulation, agreed settlement, or consent order.”). Indeed, though

unmentioned in the briefs, AHCA may “[e]xercise all other powers which are

reasonably necessary or essential to carry out the expressed intent, objects, and

purposes of this chapter, unless specifically prohibited in this chapter.” Id.

§ 408.15(10). We have no disagreement that AHCA’s powers, express and

implied, are bountiful; after all, its mission is to oversee one of the nation’s largest

                                          12
health care marketplaces. Yet we find no principle of law allowing an agency, even

one with the gravity of AHCA’s charge, to exceed its delegated statutory authority

simply because private parties to a settlement agreement deem it mutually

beneficial. This point is particularly important because agreements of competing

health care companies raise antitrust concerns, making it important that a state’s

regulatory actions—including issuance of certificates of need—are pursuant to

clearly articulated and affirmatively expressed legislative directives. Given the

“fundamental national values of free enterprise and economic competition that are

embodied in the federal antitrust law,” F.T.C. v. Phoebe Putney Health Sys., Inc.,

133 S. Ct. 1003, 1010 (2013), “[w]hen a State empowers a group of active market

participants to decide who can participate in its market, and on what terms, the

need for supervision is manifest.” N. Carolina State Bd. of Dental Exam’rs v.

F.T.C., 135 S. Ct. 1101, 1114 (2015); see generally Scott D. Makar, Antitrust

Immunity Under Florida’s Certificate of Need Program, 19 Fla. St. U. L. Rev. 149,

150 (1991) (discussing contours of immunity under Florida’s then-existing

certificate of need program). Informal disposition of proceedings via settlement

agreements are permissible, if not encouraged for efficiency’s sake, provided they

are within the lawful authority of the agency. § 120.57(4), Fla. Stat.

      We have searched for the existence of colorable statutory authority for

AHCA’s action in this case, but found none. Frasier Hospital’s claim falls into the

                                         13
limited category of cases allowing for direct resort to a circuit court without

exhaustion of remedies. The trial court, which had jurisdiction over the claim,

should not have dismissed the action with prejudice. Under ordinary

circumstances, the certificate of need at issue would have expired after 18 months,

on June 7, 2012, but was extended well beyond that date by the agency’s action;

indeed, the validity period did not commence until a year later on June 1, 2013.

Even then, AHCA agreed not to license the hospital prior to December 1, 2016.

Whatever authority AHCA has, colorable or apparent, is not so elastic as to allow

an effective quadrupling of the statutorily set validity period. To do so would allow

the “banking” of certificates well-beyond their legislatively-set duration, which

runs contrary to the statutory framework allowing for applications (and

reapplications) in biennial review/batching cycles so that health care projects can

be proposed, compared, and authorized expeditiously by AHCA in response to the

dynamics of the often-shifting health care marketplace. See § 408.039, Fla. Stat.

(“The agency by rule shall provide for applications to be submitted on a timetable

or cycle basis; provide for review on a timely basis; and provide for all completed

applications pertaining to similar types of services or facilities affecting the same

service district to be considered in relation to each other no less often than

annually.”); Rule 59C-1.008(1), Fla. Admin. Code (2015) (providing for “two

batching cycles annually” for comparative review). The Legislature could grant the

                                         14
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, and

we find no reasonable extrapolation of the agency’s existing authority to support

the actions alleged in Fraser Hospital’s amended complaint.

      All this said, we point out that our decision allows Fraser Hospital’s foot in

the circuit court’s door; it does not mean, however, that the hospital prevails. Both

West Jacksonville and AHCA may raise affirmative defenses, such as whether

Fraser Hospital knew or was on notice of the certificate’s issuance (or purported

termination date of June 7, 2012), but failed to take timely action to protect its

interest thereby constituting a waiver. Fraser Hospital says it wasn’t notified,

couldn’t have anticipated the lengthy duration of the certificate at issue, and

justifiably assumed that the validity period of the certificate would terminate no

more than 18 months from its issuance; but these are factual matters to be fleshed

out in the proceedings. We also note the uniqueness of the facts presented: an

elongated postponement of the validity period for a proposed hospital that

currently lacks even a location, no land having yet been acquired. Were the

footings of the hospital dug and construction well underway, the equities of

challenging the legality of this extended period might be different.




                                         15
                                      III.

      The dismissal of Fraser Hospital’s amended complaint, seeking a declaration

that the issuance of West Jacksonville’s certificate of need exceeded AHCA’s

statutory authority, is reversed.

      REVERSED

RAY, and SWANSON, JJ., CONCUR.




                                       16
