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John F. Murphy Homes, Inc. v. State

Supreme Court of Maine

April 11, 2017

JOHN F. MURPHY HOMES, INC.
v.
STATE OF MAINE

          Argued: November 8, 2016

         Reporter of Decisions

          Gerald F. Petruccelli, Esq. (orally), and Kimberly A. Watson, Esq., Petruccelli, Martin & Haddow, LLP, Portland, for appellant John F. Murphy Homes, Inc.

          Janet T. Mills, Attorney General, and Christopher C. Taub, Asst. Atty. Gen. (orally), Office of the Attorney General, Augusta, for appellee State of Maine

          Panel: SAUFLEY, C.J., and ALEXANDER, MEAD, GORMAN, JABAR, and HUMPHREY, JJ.

          ALEXANDER, J.

         [¶l] John F. Murphy Homes, Inc. (Murphy Homes), appeals from a judgment entered in the Business and Consumer Docket [Horton, J.) granting summary judgment in favor of the State on John F. Murphy Homes's complaint seeking recovery on the grounds of breach of contract, quantum meruit, and equitable estoppel, among other equitable remedies.[1] We affirm the judgment. Because the breach of contract and quantum meruit claims are not legally viable, we focus our analysis on the equitable estoppel issue.

         I. CASE HISTORY

         [¶2] The following facts are derived from the parties' statements of material fact, viewed in the light most favorable to John F. Murphy Homes, Inc., the nonprevailing party. Estate of Smith v. Cumberland Cty., 2013 ME 13, ¶ 2, 60A.3d759.

         [¶3] Murphy Homes operates a Special Purpose Private School. The services it offers to its students, which are either medical or educational, are paid generally in two ways. For the medical services it provides, Murphy Homes bills MaineCare directly. MaineCare is the State Medicaid program, administered by the Department of Health and Human Services (DHHS). See 22 M.R.S. § 3173 (2016). It is funded by the State and federal governments: the federal government covers two-thirds of costs, and the State pays one-third. The State's one-third contribution to MaineCare is commonly referred to as the "Seed" because the federal government's obligation to pay originates with the State's promise to cover one-third of the costs. The rate at which Murphy Homes may bill for the medical services it provides is established by MaineCare regulations stated in the MaineCare Benefits Manual.

         [¶4] During the time at issue, Murphy Homes executed at least three provider agreements with MaineCare: in 1998, in 2001, and in 2009. Each of the agreements contains provisions requiring Murphy Homes to comply with all relevant state and federal laws, including regulations contained in the MaineCare Benefits Manual. In accordance with procedures outlined in the Manual, Murphy Homes was to submit claims for payment to DHHS concerning the medical services it provided.

         [¶5] Under the federal Medicaid program, DHHS reimbursed providers for approximately one-third of their eligible costs, and the federal government was to pay, through DHHS, the remaining two-thirds. Pursuant to the Manual, after Murphy Homes submitted a claim, DHHS would send Murphy Homes a remittance form indicating the amount billed during that billing cycle, the "allowed" portion of the amount billed, and the amount DHHS was actually paying. If Murphy Homes believed that it was underpaid on any given claim, it was required to invoke, within 120 days, the review procedures specified in the Manual. See 14 C.M.R. 10 144 101-1-20, § 1.12 (2014).

         [¶6] For the educational services it provided, Murphy Homes charged tuition to the entity that referred the child to its programs-either the public school district, the child's parents, or the Department of Education. The Maine Department of Education (DOE) set Murphy Homes's yearly tuition rate based on the Cost Accounting and Rate Establishment System (CARES) report Murphy Homes submitted each year. In each CARES report, Murphy Homes was to document its costs in providing educational services for that year.

         [¶7] Sometime in 2001, Murphy Homes's Chief Financial Officer (CFO) received and reviewed Murphy Homes's first payment and remittance form for medical expenses from DHHS. The CFO noticed that Murphy Homes was being paid an amount less than the amount denoted as "allowed" on the form. The CFO called DHHS to inquire about the discrepancy, and was informed by a DHHS employee that the difference between the amount "allowed" and the lower amount actually paid was the Seed, or the State's portion of MaineCare funding. The DHHS employee indicated that the Seed was not to be paid by DHHS, but rather it was "in the tuition." Although the costs at issue were for medical services rather than educational services, the CFO believed what the DHHS employee told him.

         [¶8] In the summer of 2002, the CFO spoke with the DOE employee responsible for calculating tuition rates, who confirmed that Seed payments representing the State's share of the allowed medical expenses were added to the tuition rates set by DOE for educational expenses. The record does not suggest that, after those few conversations with DHHS and DOE employees, there were any further conversations with State employees about payment amounts for nearly a decade, until 2011. During all of this time, Murphy Homes continued to receive payments and payment documentation that demonstrated on the face of the documents that Murphy Homes was receiving payments in amounts less than Murphy Homes believed it was entitled to receive.

         [¶9] Because the CFO believed that the Seed payments were already included in DOE tuition calculations, he did not include the Seed amount in the CARES forms he submitted to DOE for educational expenses. Despite his decision to omit the Seed information from CARES reports, the CFO believed that the Seed was being paid by DOE in part because Murphy Homes was approved for tuition rates for educational expenses that were higher than the operating costs it submitted on the CARES forms.

         [¶10] Although the tuition rates calculated by DOE were higher than Murphy Homes's educational operating costs, the rates were never high enough to cover both the Seed and the educational operating costs. The CFO believed that this discrepancy was the result of DOE including the entire Seed amount in the tuition rates but approving less than Murphy Homes's total annual educational costs. Despite noting the underpayments apparent on the remittance forms, Murphy Homes never invoked the 120-day administrative review procedure.

         [¶11] In reality, the State had not been paying the Medicaid Seed. At some point in 2011, the State, through DHHS, advised Murphy Homes that it would begin to pay "the full rate." The State's announcement regarding full payment prompted Murphy Homes's officials to investigate its history of reimbursement under the MaineCare program. This investigation led Murphy Homes's staff to conclude that there was "no way [Seed] could have been part of the tuition."

         [¶12] On April 12, 2013, Murphy Homes filed a complaint with the Superior Court that was subsequently transferred to the Business and Consumer Docket. Murphy Homes's complaint, as construed by the trial court, stated claims for breach of contract, quantum meruit, and an equitable claim for unjust enrichment or equitable estoppel. See Fn. 1. Murphy Homes alleges that it is owed approximately $7.5 million for Seed payments not paid between 2001 and 2011.

         [¶13] After a period of discovery, the State moved for summary judgment on all claims. The trial court granted the State's motion, concluding that Murphy Homes's claims for breach of contract were barred because it failed to properly invoke the payment review process provided in the MaineCare regulations. Further, the court determined that Murphy Homes could not utilize equitable estoppel to prevent the State from relying on the 120-day deadline provided in the Manual, because Murphy Homes's reliance on the statements of State employees that the Seed payments were included in tuition rates for educational expenses was unreasonable as a matter of law. Finally, the court dismissed Murphy Homes's remaining claims for unjust enrichment and quantum meruit, concluding that the claims were barred pursuant to the doctrine of sovereign immunity. Murphy Homes timely appealed. See M.R. App. P. 2(b).

         II. LEGAL ANALYSIS

         A. Contract and ...


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