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Lafferty Enterprises, Inc. v. Commonwealth

Court of Appeals of Kentucky

March 22, 2019

LAFFERTY ENTERPRISES, INC. D/B/A TRANS-STAR AMBULANCE SERVICE APPELLANT
v.
COMMONWEALTH OF KENTUCKY, CABINET FOR HEALTH AND FAMILY SERVICES, OFFICE OF HEALTH POLICY; SECRETARY VICKIE YATES BROWN GLISSON, CABINET FOR HEALTH AND FAMILY SERVICES, IN HER OFFICIAL CAPACITY; AND JAN-CARE AMBULANCE SERVICE, TRI-STATE DIVISION INCORPORATED APPELLEES

          APPEAL FROM FRANKLIN CIRCUIT COURT HONORABLE PHILLIP J. SHEPHERD, JUDGE ACTION NO. 17-CI-00168

          BRIEFS FOR APPELLANT: Mark W. Leach Louisville, Kentucky

          BRIEF FOR APPELLEE JAN-CARE AMBULANCE SERVICE, TRI-STATE DIVISION INCORPORATED: Jay E. Ingle Chacey R. Ford Lexington, Kentucky

          BEFORE: DIXON, KRAMER AND LAMBERT, JUDGES.

          OPINION

          DIXON, JUDGE.

         Lafferty Enterprises, Inc. d/b/a Trans-Star Ambulance Service ("Trans-Star") appeals from the Franklin Circuit Court's opinion and order entered October 5, 2017, reversing the final order of the Cabinet for Health and Family Services ("Cabinet"). In this order the court found that Jan-Care Ambulance Service, Tri-State Division Incorporated ("Jan-Care") violated Kentucky's Certificate of Need ("CON") laws and licensure requirements because it was not exempt from compliance under federal preemption through its contracts with the Veterans Administration ("VA"). Trans-Star further appeals from the circuit court's order denying reconsideration of its October 5, 2017, opinion and order. After careful review of the briefs and the law, we affirm.

         Jan-Care is a West Virginia corporation providing ambulance services. In 2005, following the VA's Request for Proposals ("RFP") and Jan-Care's bid to provide services, Jan-Care was awarded a contract with the VA to service patients of the Huntington VA Hospital in parts of West Virginia, Kentucky, [1] and Ohio. After being awarded this contract, Jan-Care provided ambulance services in Kentucky without obtaining either a Kentucky CON or Kentucky license. Jan-Care also subcontracted with other ambulance services, including Trans-Star, to provide services in Kentucky pursuant to its VA contract.

         Of relevance to the issues before us, page 16, paragraph 9(c), of the contract provided:

[t]he VA will place calls directly with the contractor, if the contractor does not have an ambulance available or is not licensed to provide services to a particular area, the contractor is responsible to coordinate the trip with another licensed ambulance provider.

         Additionally, page 20, section 52.252-2 CLAUSES INCORPORATED BY REFERENCE, of the contract included 852.237-70 CONTRACTOR RESPONSIBILITIES, referring to 48 C.F.R.[2] 852.237-70 of the Federal Acquisition Regulations ("FAR") - which is mirrored by the VA Acquisition Regulation ("VAAR") - providing in pertinent part:

[t]he contractor shall obtain all necessary licenses and/or permits required to perform this work.

         This contract was extended until the VA issued another RFP for which Jan-Care submitted its bid[3] resulting in their 2012 contract which contained substantive revisions.[4] Notably, the language of the previous contract's paragraph 9(c), quoted above, was not included in the 2012 contract.[5] Instead, the 2012 contract included a state-specific requirement for licensure in West Virginia. By contrast, it contains no requirement for Kentucky licensure. In 2013, Jan-Care ceased using subcontractors to fulfill its VA contract.

         On July 1, 2014, as a result of a complaint by Trans-Star, the Kentucky Board of Emergency Medical Services ("KBEMS") sent a cease and desist letter to Jan-Care concerning its Kentucky operations without Kentucky licensure. Jan-Care responded asserting its VA contract preempted Kentucky licensure requirements. On July 25, 2014, KBEMS replied advising it did not intend to take further action against Jan-Care, pending the Cabinet's issuance of an advisory opinion - which was subsequently never requested or issued.

         In 2015, Trans-Star sued Jan-Care in federal court alleging Jan-Care was filing false or fraudulent claims with the VA in violation of the False Claims Act ("FCA"), citing 31 U.S.C.[6] 3729-3733. The federal court dismissed this action with prejudice in 2016 for failure to state a claim upon which relief could be granted.[7]

         In 2016, during the pendency of the federal action, Trans-Star filed a complaint as an affected party, by being a competitor, with the Cabinet alleging Jan-Care was transporting patients in Kentucky in violation of Kentucky law. Trans-Star requested the Cabinet commence show cause proceedings against Jan-Care based on its amended complaint in the federal action. Jan-Care moved to dismiss the show cause proceedings to which Trans-Star responded. In lieu of a hearing, the hearing officer entered a recommended order in favor of granting Jan-Care's motion to dismiss based on federal preemption. Specifically, the hearing officer found the VA runs under the contract were not subject to Kentucky CON laws. Trans-Star filed exceptions to the recommended order to which Jan-Care responded. The Cabinet remanded the matter for further proceedings to conduct a hearing and take evidence to more fully develop the record to allow it to determine whether preemption applied.

         The show cause hearing took place on September 29 and 30, 2016, with both parties presenting witnesses and documents. Thereafter, the hearing officer entered his second recommended order finding that the language of the 2005 contract:

contemplates that the VA contractor will be licensed to provide ambulance services in the areas covered by the contract. Therefore rendering any argument that the VA Contract preempts Kentucky CON and licensing laws moot. Even if the VA Contract were to preempt Kentucky CON and licensing laws, the VA contract itself requires licensing in the covered areas; a license which Jan-Care does not possess. As a result Jan-Care has failed to meet their burden of proof that they are not ...

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