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Commonwealth v. Sexton

Supreme Court of Kentucky

September 27, 2018

COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES, DEPARTMENT FOR MEDICAID SERVICES APPELLANT
v.
LETTIE SEXTON, BY AND THROUGH HER AUTHORIZED REPRESENTATIVE, APPALACHIAN REGIONAL HEALTHCARE, INC.; AND COVENTRY HEALTH AND LIFE INSURANCE D/B/A COVENTRYCARES, INC. APPELLEES AND COVENTRY HEALTH AND LIFE INSURANCE D/B/A COVENTRYCARES, INC. APPELLANT
v.
LETTIE SEXTON, BY AND THROUGH HER AUTHORIZED REPRESENTATIVE, APPALACHIAN REGIONAL HEALTHCARE, INC., AND COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES APPELLEES AND LETTIE SEXTON, BY AND THROUGH HER AUTHORIZED REPRESENTATIVE, APPALACHIAN REGIONAL HEALTHCARE, INC. APPELLANT
v.
COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES AND COVENTRY HEALTH AND LIFE INSURANCE D/B/A COVENTRYCARES, INC. APPELLEES AND COVENTRY HEALTH AND LIFE INSURANCE APPELLANT
v.
LETTIE SEXTON, BY AND THROUGH HER AUTHORIZED REPRESENTATIVE, APPALACHIAN REGIONAL HEALTHCARE, INC., AND COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES APPELLEES

          ON REVIEW FROM COURT OF APPEALS CASE NO. 2015-CA-000246 HARLAN CIRCUIT COURT NO. 14-CI-00542.

          COUNSEL FOR COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES, DEPARTMENT FOR MEDICAID SERVICES APPELLANTS: Catherine Elaine York Cabinet for Health and Family Services.

          COUNSEL FOR LETTIE SEXTON, BY AND THROUGH HER AUTHORIZED REPRESENTATIVE, APPALACHIAN REGIONAL HEALTHCARE, INC.: Virginia Hamilton Snell Carole Douglas Christian Amanda Warford Edge Wyatt, Tarrant & Combs, LLP.

          COUNSEL FOR COVENTRY HEALTH AND LIFE INSURANCE D/B/A COVENTRYCARES, INC.: Joyce Ann Merritt Samantha Nance Embry Merritt Shaffar Womack, PLLC Miguel Estrada Lucas C. Town send Gibson, Dunn 85 Crutcher LLP.

          OPINION

          MINTON CHIEF JUSTICE.

         This case requires us to consider whether the courts of Kentucky can undertake a statutorily created judicial review of an administrative agency's final order when the person appealing that final order does not have a concrete injury. Our resolution requires us to apply the doctrine of constitutional standing, and, in doing so, we hold as a matter of first impression that the existence of a plaintiffs standing is a constitutional requirement to prosecute any action in the courts of this Commonwealth, adopting the United States Supreme Court's test for standing as espoused in Lujan v. Defenders of Wildlife.[1] Because this case reaches us via an interlocutory appeal from the circuit court's review of an agency ruling, we further hold that all of Kentucky's courts have the responsibility to ascertain, upon the court's own motion if the issue is not raised by a party opponent, whether a plaintiff has constitutional standing, an issue not waivable, to pursue the case in court. Under that test, we conclude that Medicaid beneficiary Lettie Sexton, the putative petitioner in the present case, does not have the requisite constitutional standing to pursue her case in the courts of the Commonwealth. So, we reverse the decision of the Court of Appeals, vacate the ruling of the circuit court, and remand this case to the circuit court with instructions to dismiss the case.

         I. BACKGROUND.

         Lettie Sexton, a Medicaid beneficiary, was admitted to Appalachian Regional Healthcare ("ARH"), complaining of chest pain. ARH sent a request for preauthorization of medical services to Coventry Health and Life Insurance, d/b/a Coventry Cares, Inc. ("Coventry"), a managed-care organization that had contracted with the Kentucky Cabinet for Health and Human Services ("Cabinet") to provide reimbursement to hospitals for certain services provided to Medicaid beneficiaries. Coventry approved a 23-hour observation stay at ARH. Sexton, through ARH, her designated representative for any disputed claims, requested that the observation stay at ARH be extended 15 more hours for a cardiology consultation. Coventry denied reimbursement for this request. Sexton was eventually hospitalized at ARH for approximately 38 hours.

         ARH then requested an internal review by Coventry of its denial of reimbursement for the 15 hours of additional hospitalization. After review, Coventry upheld its denial. ARH, ostensibly acting for Sexton, then requested a Medicaid Fair Hearing to challenge Coventry's denial. A hearing officer for the administrative-services branch of the Cabinet conducted that hearing and ruled that Sexton lacked standing to pursue an appeal of Coventry's denial of reimbursement to ARH because Sexton herself had no stake in the outcome of the dispute between ARH and Coventry. The hearing officer's ruling was based upon the fact that because Medicaid had paid ARH for the services rendered to Sexton, she would owe nothing at all to ARH for the extended hospital stay.[2] In due course, the Cabinet Secretary adopted the hearing officer's recommendation as the Cabinet's final order.

         ARH, acting as Sexton's representative, then sought judicial review under Kentucky Revised Statute (KRS) 13B.140 of the Cabinet's final order by timely filing a petition for review in the Harlan Circuit Court. The Cabinet filed a motion to dismiss the petition, alleging that: (1) Sexton lacked standing; (2) ARH was not Sexton's authorized representative; (3) venue did not lie in Harlan County; and (4) that the petition was barred by the doctrine of sovereign immunity because it did not strictly comply with the requirements of KRS 13B.140. Coventry joined in the Cabinet's motion on the same grounds.

         Following a hearing, the circuit court denied the motion to dismiss. On the issue of standing, the circuit court found that the individual ARH employees who had been authorized by Sexton to represent her interests were sufficiently identified in the exhibits to the petition to provide standing and to comply substantially with the requirements of KRS 13B. 140. As for venue and subject-matter jurisdiction, the circuit court ruled that the addresses for Sexton's designated representatives were the address of the ARH hospital employees located in Harlan County, thus fixing venue there in accordance with KRS 13B.140. On the issue of sovereign immunity, the circuit court determined that this argument was based upon the proposition that a failure strictly to comply with KRS 13B. 140 eliminated waiver of sovereign immunity. But since the circuit court found the petition to be otherwise sufficient, the limited waiver of immunity was not eliminated. So, the circuit court denied Coventry's and the Cabinet's motions to dismiss the petition.

         Because the circuit court denied the Cabinet and Coventry's sovereign-immunity argument, they each filed an interlocutory appeal in the Court of Appeals. ARH initially sought a dismissal of the appeal, claiming that the circuit court's order was not final and appealable.

         On ARH's motion to dismiss the appeal, the Court of Appeals found that the circuit court's rulings on sovereign immunity were immediately appealable, and therefore denied ARH's motion to dismiss the appeal. The Court of Appeals also found that there was no requirement that KRS 13B.140 be strictly followed for the waiver of sovereign immunity to apply. But the Court of Appeals also found that in Medicaid reimbursement cases like this one, sovereign immunity has been waived by the overwhelming implication of statutory language, including KRS 45A.235.[3] Additionally, the Court of Appeals found that the statutes governing the state Medicaid program, KRS 205.510-645, indicate that sovereign immunity had been waived.

         Finally, the Court of Appeals found that venue, as provided in the Kentucky Model Procurement Code, specifically KRS 45A.245, mandated that an aggrieved person, firm, or corporation who has a valid written contract must bring an enforcement action in Franklin Circuit Court. Because the petition was filed in Harlan Circuit Court, the Court of Appeals held that the circuit court's ruling denying the motion to dismiss based on improper venue should be vacated and directed that the parties may make a motion to transfer the case to Franklin Circuit Court or file a new petition for review in Franklin Circuit Court.

         Both parties then filed discretionary-review petitions, which we granted.

         II. ANALYSIS.

         A. Reviewability of the Issues.

         From the outset of our analysis, it is important to note that this case is before us at this juncture as an interlocutory appeal because of the lower courts' rulings on the sovereign immunity issue. And we recently held in Baker v. Fields "that the scope of appellate review of an interlocutory appeal of the trial court's determination of the application of qualified official immunity is limited to the specific issue of whether the immunity was properly denied and nothing more."[4] Although the case before us today involves a circuit court's ruling on an issue of sovereign-immunity, not qualified official immunity, the principle is the same-the scope of appellate review of an interlocutory appeal of the trial court's determination of the application of sovereign immunity is limited to that issue and nothing more.

         Such a rule grounds itself in this Court's analysis of issues that can and cannot be decided via interlocutory appeal in Breathitt County Bd. of Educ. v. Prater.[5] At the risk of simply restating our analysis in that case and in Baker v. Fields, we simply note that interlocutory appeals are a vehicle to be used rarely, only to decide a few, enumerated issues.

         Admittedly, the question of whether the issue of standing can be reached on an interlocutory appeal has never been before this Court. But a nationwide review of relevant case law reveals a trend that parties, themselves, may not raise the issue of standing by interlocutory appeal.[6] Most consistently, federal appellate courts hold "that a district court's denial of a motion to dismiss on justiciability grounds is not immediately appealable under the collateral-order doctrine."[7] "Under the 'collateral order doctrine,' also called the 'Cohen[8] doctrine,' a limited set of district court orders are reviewable though short of final judgment."[9] And in Breathitt County, we aligned Kentucky's stance on interlocutory appeals with that of federal law's collateral-order doctrine.[10]

         The rare use of interlocutory appeals in Kentucky, the absence of legal precedent in Kentucky allowing an interlocutory appeal of a trial court's ruling on the issue of standing, the uniform federal legal precedent prohibiting an interlocutory appeal on the issue of standing, this Court's "compelling interest . in maintaining an orderly appellate process, "[11] and the general rule that a nonfinal order cannot be immediately appealed, all converge to satisfy us of the value of a rule that prohibits an interlocutory appeal of a trial court's decision regarding the plaintiffs standing to sue.

         Therefore, we hold that a trial court's ruling on the issue of constitutional standing, in and of itself, does not give rise to an immediate right to an appeal, i.e. an interlocutory appeal. But such prohibition against interlocutory appeal on solely the issue of standing should not constrain the power of the appellate court, at the instance of a party-opponent or acting upon on its own motion, from inquiring into whether a plaintiff has the requisite standing to sue when an interlocutory appeal is properly before an appellate court on an issue recognized as immediately appealable.

         In Harrison v. Leach, we held that an appellate court errs when it raises the issue of standing on its own motion because standing is a waivable defense.[12] But Harrison crafted this rule while analyzing the issue of statutory, not constitutional, standing.[13] To clarify the differences among the standing concepts, we find helpful this explanation offered by the U.S. Court of Appeals for the Third Circuit:

Though all are termed "standing," the differences between statutory, constitutional, and prudential standing are important. Constitutional and prudential standing are about, respectively, the constitutional power of a . . . court to resolve a dispute and the wisdom of so doing. Statutory standing is simply statutory interpretation: the question it asks is whether [the legislature] has accorded this injured plaintiff the right to sue the defendant to redress his injury.[14]

         Put differently, "The question whether a plaintiff can sue for violations of [a statute] is a matter of statutory standing, which is perhaps best understood as not even standing at all.'. . . Dismissal for lack of statutory standing is properly viewed as dismissal ... for failure to state a claim [upon which relief may be granted]."[15]

         In this case, by contrast, constitutional standing is at issue because Coventry and the Cabinet are not alleging that the federal or state Medicaid statutes and regulations do not afford Sexton relief, i.e. that these laws make no provision for Sexton to bring suit; rather, Coventry and the Cabinet are alleging that Kentucky courts cannot hear this case because no Justiciable cause-a constitutional predicate to maintaining a case in Kentucky courts-exists. We hold that all Kentucky courts have the constitutional duty to ascertain the issue of constitutional standing, acting on their own motion, to ensure that only justiciable causes proceed in court, because the issue of constitutional standing is not waivable.[16] Our holding conforms to the general understanding of constitutional standing as a predicate for a court to hear a case and the ability of a court, acting on its own motion, to address that issue.[17]

         In this case, the procedurally proper interlocutory-appeal issue before this Court is whether the doctrine of sovereign immunity bars Sexton from suit. Our holding today is not an affirmation that sovereign immunity exists in this case to bar Sexton from suit-we do not reach the merits of that argument because Sexton lacks the constitutional standing necessary for us to reach any of the other potential issues in this case. A party need not be correct on the merits of its interlocutory appeal issue for an appellate court to raise the issue of constitutional standing. But a party must have a facially valid and procedurally proper interlocutory appeal for an appellate court to reach the issue of standing.[18] Because we have determined that this case is properly before this Court on interlocutory appeal, we now turn to the constitutional standing issue in this case.

         B. The principle of constitutional standing in Kentucky.

         An elementary principle of the federal and state governmental structure is the division of power among three branches of government: the legislature, the executive, and the judiciary.[19] The United States Supreme Court has interpreted the United States Constitution as providing a "series of limits on the federal judicial power."[20] Identified as the "justiciability doctrines," these limits on the federal judicial power derive from Article III, Section 2, Clause 1 of the U.S. Constitution, which states, "The judicial Power shall extend to all Cases . . . [and] Controversies . . .."[21] A federal court cannot adjudicate a case that does not meet the requirements of the justiciability doctrines.

         The U.S. Supreme Court has identified five major justiciability doctrines: (1) the prohibition against advisory opinions, (2) standing, (3) ripeness, (4) mootness, and (5) the political-question doctrine.[22] The Court has also distinguished between justiciability requirements that are "constitutional," meaning that Congress by statute cannot override them, and "prudential," meaning that they are based on prudent judicial administration and can be overridden by Congress since they are not constitutional requirements.[23] Of most concern in this case is the standing requirement and the constitutional limitations, if any, the standing requirement imposes.

         "In essence the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues."[24] Federal constitutional standing has three requirements: the plaintiff must allege that 1) he or she has suffered or imminently will suffer an injury; 2) the injury is fairly traceable to the defendant's conduct; and 3) a favorable federal court decision is likely to redress the injury.[25] In addition to these federal constitutional requirements, two major federal prudential standing principles exist: (1) a party generally may assert only his or her own rights and cannot raise the claims of third parties not before the court, i.e. the prohibition against "third-party standing"; and (2) a plaintiff may not sue as a taxpayer who shares a grievance in common with all other taxpayers, i.e. the prohibition against "generalized grievances."[26]

         To be clear, these standing requirements as outlined above are discussed in the context of application to the limit on federal judicial power, not state judicial power. Under principles of federalism, "[l]ong-established precedent holds that Article III standing requirements do not apply in state courts and courts of the territories."[27] So we now examine Kentucky's current standing doctrine.

         A recently published law journal article[28] aptly summarizes Kentucky's standing doctrine:

In Kentucky, standing is not a constitutional doctrine, but appears to be a self-imposed restraint based on a prohibition against generalized grievances as a "fundamental" principle of adjudication. Kentucky courts have offered limited explanation of their standing doctrine. The source of the doctrine appears to be a 1957 case challenging an alcohol board's decision to increase the number of licenses available.[29] There, [Kentucky's highest Court] held that "[i]t is fundamental that a person may attack a proceeding of this nature by independent suit only if he can show that his legal rights have been violated."[30] This was based on the principle that "[a] public wrong or neglect or breach of a public duty cannot be redressed in a suit in the name of an individual whose interest in the right asserted does not differ from that of the public generally, or who suffers injury only in common with the general public."[31]
Under the modern Kentucky test, "[t]o have standing to sue, one must have a judicially cognizable interest in the subject matter of the suit" that is not "remote and speculative," but "a present and substantial interest in the subject matter."[32] Kentucky courts have not adopted the Lujan test, but have adopted elements of federal decisions on associational standing, which have seen substantially more elaboration than general standing doctrine in the Kentucky courts.[33]

         Kentucky courts have seemingly created a judicially-as opposed to constitutionally-imposed standing requirement. At the federal level, where standing is partly grounded in Article III, Section 2, Clause 1 of the U.S. Constitution, while "[the legislature] may enact statutes creating legal rights, the invasion of which creates standing, even though no injury would exist without the statute, "[34] "[i]t is, of course, true that '[the legislature] may not confer jurisdiction on . . . courts to render advisory opinions[.]'"[35] Federal law's constitutional standing requirement is a safeguard against the overreach of judicial, legislative, and executive power. To ascertain what, if any, constitutional standing requirements exist in Kentucky, we turn to the Kentucky Constitution first and foremost.

         Section 109 of the Kentucky Constitution states, "The judicial power of the Commonwealth shall be vested exclusively in one Court of Justice which shall be divided into a Supreme Court, a Court of Appeals, a trial court of general jurisdiction known as the Circuit Court and a trial court of limited jurisdiction known as the District Court." The Kentucky Constitution then goes on to outline the various levels of courts in Kentucky and their respective powers.

         Most importantly, "The Circuit Court shall have original jurisdiction of all Justiciable causes not vested in some other court. It shall have such appellate jurisdiction as may be provided by law."[36] "The Court of Appeals shall have appellate jurisdiction only . . ." except in certain situations not relevant in this case.[37] "The Supreme Court shall have appellate jurisdiction only . . ." except in certain situations not relevant to this case.[38] "The district court shall be a court of limited jurisdiction and shall exercise original jurisdiction as may be provided by the General Assembly."[39]

         Notably, § 109 of the Kentucky Constitution, describing the judicial power in Kentucky, does not contain the same case or controversy language contained in Article III, Section 2, Clause 1 of the U.S. Constitution, nor does any other provision of the Kentucky Constitution discussing judicial power in the various levels of courts. This case or controversy language in the U.S. Constitution is the lynchpin for all justiciability doctrines, including standing. Most notably, however, § 112(5) of the Kentucky Constitution grants circuit courts original jurisdiction over all justiciable causes not vested in some other court.

         The standing doctrine is said to have its origins in the U.S. Supreme Court case of Fairchild v. Hughes, a decision written by Justice Brandeis and rendered in 1922.[40] The U.S. Supreme Court later expounded on the doctrine: If a party does not have the requisite standing to bring suit, the case is said to be nonjusticiable; if a party does have the requisite standing to bring suit, the case is said to be justiciable.[41] The first appearance of the justiciable causes phrase in § 112(5) appears in the 1974 Amendments to the Kentucky Constitution. By limiting the circuit court's jurisdiction to adjudicating justiciable causes only, § 112(5) appears to have adopted some notion of the justiciability doctrines articulated by the U.S. Supreme Court.

         We have recognized the justiciable causes phrase as a constitutional limitation on Kentucky courts 'judicial power before; "'Standing,' of course, in its most basic sense, refers to an integral component of the 'justiciable cause' requirement [in Ky. Const. § 112(5)] underlying the trial court's jurisdiction."[42] Lawson also provided a potential constitutional test for Kentucky courts to examine standing: "To invoke the court's jurisdiction, the plaintiff must allege [1] an injury [2] caused by the defendant [3] of a sort the court is able to redress."[43] The emphasized words in the sentence quoted from Lawson-injury, causation, and redressability-are the three constitutional standing requirements as outlined by the U.S. Supreme Court in Lujan.[44] To provide clarity to Kentucky's standing doctrine, we formally adopt the Lujan test as the constitutional standing doctrine in Kentucky as a predicate for bringing suit in Kentucky's courts.

         So, at bottom, for a party to sue in Kentucky, the initiating party must have the requisite constitutional standing to do so, defined by three requirements: (1) injury, (2) causation, and (3) redressability. In other words, ''A plaintiff must allege personal injury fairly traceable to the defendant's allegedly unlawful conduct and likely to be redressed by the requested relief."[45] "[A] litigant must demonstrate that it has suffered a concrete and particularized injury that is either actual or imminent. ., ."[46] "The injury must be . . . 'distinct and palpable,' and not 'abstract' or 'conjectural' or 'hypothetical.'"[47] "The injury ...


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