Liberty Dialysis-Hawaii, LLC v. Rainbow Dialysis, LLC. , 130 Haw. 95 ( 2013 )

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Electronically Filed
Supreme Court
SCAP-12-0000018
27-JUN-2013
09:23 AM
IN THE SUPREME COURT OF THE STATE OF HAWAI#I
---o0o---
LIBERTY DIALYSIS-HAWAII, LLC,
a Delaware limited liability company,
Petitioner/Appellant-Appellant/Cross-Appellee,
vs.
RAINBOW DIALYSIS, LLC,
a Delaware limited liability company,
Respondent/Appellee-Appellee/Cross-Appellant,
and
STATE HEALTH PLANNING & DEVELOPMENT AGENCY,
DEPARTMENT OF HEALTH, STATE OF HAWAI#I,
an administrative agency of the State of Hawai#i,
Respondent/Appellee-Appellee.
SCAP-12-0000018
APPEAL FROM THE CIRCUIT COURT OF THE FIRST CIRCUIT
(CAAP-12-0000018; CIV. NO. 11-1-0532-03)
JUNE 27, 2013
RECKTENWALD, C.J., NAKAYAMA, AND McKENNA, JJ.,
WITH ACOBA, J., DISSENTING, WITH WHOM POLLACK, J., JOINS
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OPINION OF THE COURT BY RECKTENWALD, C.J.
This appeal requires us to consider whether the
Department of Health’s general administrative rules concerning
disqualification apply to State Health Planning & Development
Agency (SHPDA) committees that are established to reconsider the
agency’s approval of a Certificate of Need. Briefly stated,
SHPDA granted Rainbow Dialysis, LLC a conditional Certificate of
Need to establish two outpatient dialysis facilities at Kaiser
Foundation Health Plan, Inc., facilities on Maui. Another Maui
dialysis provider, Liberty Dialysis-Hawaii, LLC, sought
reconsideration of SHPDA’s decision. Thereafter, a five-member
Reconsideration Committee unanimously approved Rainbow’s
conditional Certificate of Need.
Liberty appealed the Reconsideration Decision to the
circuit court, arguing that SHPDA Administrator Ronald E. Terry
and another Reconsideration Committee member, Anne Trygstad,
should have been disqualified from participating in the
Reconsideration Decision under the Department of Health rules.
Liberty also argued that the Reconsideration Committee failed to
review Rainbow’s application de novo, and thereby improperly
placed the burden of proof on Liberty. The circuit court
affirmed, holding that the SHPDA Administrator should have been
disqualified, but that his participation in the Reconsideration
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Decision was harmless.1 The circuit court rejected Liberty’s
remaining points of error.
On appeal to this court, Liberty argues that
Administrator Terry’s participation was not harmless and, in any
event, Rainbow did not timely raise this argument. Liberty also
argues that the Reconsideration Committee erred in refusing to
disqualify Trygstad. Finally, Liberty argues that, if this court
remands for a new reconsideration hearing based on Liberty’s
disqualification arguments, it also should advise the
Reconsideration Committee that Rainbow bears the burden of proof
on remand. Rainbow cross-appealed, and argues that the circuit
court erred in determining that Administrator Terry should have
been disqualified.
We hold that neither Administrator Terry nor Trygstad
was disqualified from participating in the Reconsideration
Decision. With regard to Administrator Terry, Liberty relies on
Hawai#i Administrative Rules (HAR) § 11-1-25(a)(4), a Department
of Health rule that prohibits a hearings officer from hearing or
deciding a contested case in which he or she “substantially
participated in making the decision or action contested[.]”
However, in crafting the reconsideration statute, Hawai#i Revised
Statutes § 323D-47, the legislature clearly intended that the
SHPDA administrator participate in both the initial decision on a
1
The Honorable Karl K. Sakamoto presided.
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Certificate of Need, and in any reconsideration of that decision.
Because HAR § 11-1-25(a)(4) conflicts with this intent, it would
be invalid if applied in the circumstances here. Accordingly, we
hold that HAR § 11-1-25(a)(4) is inapplicable.
With regard to Trygstad, Liberty relies on HAR § 11-1-
25(a)(2), a Department of Health rule that provides for
disqualification where a hearings officer, director or member is
“related within the third degree by blood or marriage to any
party to the proceeding or any party’s representative or
attorney[.]” Liberty alleges that Trygstad’s brother-in-law is
the “Kaiser Permanente physician-in-charge for Maui,” and
testified as a Kaiser representative in three SHPDA advisory
panel hearings prior to the initial decision on Rainbow’s
application, and that, accordingly, Trygstad should have been
disqualified from the Reconsideration Committee. We hold that
HAR § 11-1-25 is inapplicable to the SHPDA reconsideration
proceedings. SHPDA’s more specific rule, HAR § 11-185-32,
governs disqualification practices and procedures in these
proceedings, and does not require that Trygstad be disqualified.
Because our resolution of these issues is dispositive,
we do not address Liberty’s remaining points of error. Based on
the foregoing, we affirm the circuit court’s judgment, which
affirmed the Reconsideration Decision.
I. Background
The following factual background is taken from the
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record on appeal.
A. Rainbow’s Certificate of Need application
Rainbow filed a Certificate of Need (CON) application2
with SHPDA for the establishment of two outpatient dialysis
facilities on Maui. Rainbow is and was a wholly owned affiliate
of Kaiser Foundation Health Plan, Inc. (Kaiser). Rainbow’s two
facilities would be located in or near existing Kaiser clinics in
Wailuku and Lahaina. Rainbow asserted that internalizing
dialysis services within Kaiser’s health care system would
improve management of patient care, provide benefits to patients
in isolated parts of West Maui, bring competition to the dialysis
market and lower prices, create savings over the dialysis
services then being provided by Liberty, allow for more robust
provision of services for QUEST patients, and allow Kaiser to
pass savings on to the community in the form of financial and in-
kind donations to community partners.
Liberty opposed Rainbow’s CON application, asserting
that the application failed to meet several criteria for the
grant of a CON. Additionally, Liberty asserted that it has
provided dialysis services on Maui since 2006, and that there
were several reasons that Kaiser’s dialysis expenditures had
increased, including an increase in the number of Kaiser patients
2
“‘Certificate of need’ means an authorization, when required
pursuant to section 323D-43, to construct, expand, alter, or convert a health
care facility or to initiate, expand, develop, or modify a health care
service.” Hawai#i Revised Statutes (HRS) § 323D-2 (2010).
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receiving dialysis, regulatory changes, and inflation. Liberty
also asserted that its mission “includes providing a safety
net[,]” and that its ability to continue to provide services was
dependent on its ability “to spread the real costs across a broad
base of commercial patients[.]” Liberty asserted that Rainbow’s
proposal would jeopardize Liberty’s “ability to maintain its
current scope of services for persons who are not insured by
Kaiser.” Specifically, “[i]f the small percentage of patients
with commercial insurance declines or disappears, Liberty [] will
be unable to continue to subsidize operations in more remote
regions or care for a substantial portion of the underinsured or
uninsured patients who currently receive care from Liberty [].”
As required under HRS § 323D-44(a),3 three separate
SHPDA advisory panels considered Rainbow’s CON application: the
Tri-Isle Subarea Health Planning Council, the CON Review Panel,
and the Statewide Health Coordinating Council (SHCC). Each
advisory panel held public meetings in which they received
extensive testimony both for and against the proposal, and each
issued non-binding recommendations. By a 4-1 vote, the Tri-Isle
Subarea Health Planning Council recommended approval of the
application. By a 5-0 vote (with one abstention), the CON Review
Panel recommended denial of the application. By a 7-4 vote, the
3
Pursuant to HRS § 323D-44(a) (2010), SHPDA “shall transmit the
completed [CON] application to the appropriate subarea councils, the review
panel, the statewide council, appropriate individuals, and appropriate public
agencies.”
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SHCC recommended denial of the application.
On May 3, 2010, SHPDA, through Administrator Terry,
filed a Decision on the Merits, approving Rainbow’s application
and issuing a conditional CON. In so doing, SHPDA imposed three
conditions on Rainbow. First, Rainbow was required to submit a
“detailed long-term implementation plan” regarding how it and
Kaiser would allocate cost reductions to the public and
community. Second, Rainbow was required to provide a written
acknowledgment that failure to fulfill the implementation plan
would constitute a breach of the HAR and could result in
withdrawal of the CON. Finally, Rainbow was required to enter
into a joint and several written undertaking with Kaiser to
provide chronic renal dialysis services to Hana and Molokai,
should Liberty cease providing services in those communities
within 10 years of the Decision on the Merits. Rainbow
subsequently informed SHPDA by letter that it accepted the
conditions set forth in the conditional CON and modified its
application accordingly.
Liberty sought reconsideration of the Decision on the
Merits pursuant to HRS § 323D-47(5)4 and HAR § 11-186-82.5
4
HRS § 323D-47 (Supp. 2009) provides in relevant part:
The state agency may provide by rules adopted in
conformity with chapter 91 for a procedure by which
any person may, for good cause shown, request in
writing a public hearing before a reconsideration
committee for purposes of reconsideration of the
agency’s decision. The reconsideration committee
shall consist of the administrator of the state agency
(continued...)
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Liberty argued that there was good cause for reconsideration
because SHPDA’s decision differed from the recommendation of the
SHCC.
Pursuant to HRS § 323D-47, a five-member
Reconsideration Committee was convened, composed of Administrator
Terry, and the chairpersons of the SHCC, the CON review panel,
the plan development committee of the SHCC, and the Tri-Isle
Subarea Health Planning Council. On June 14, 2010, four of the
five Reconsideration Committee members convened a public meeting
and voted to convene a public hearing for reconsideration of the
Decision on the Merits.6 SHPDA appointed Andrew Tseu as Hearings
Officer “to facilitate pre-hearing conferences and hearing
procedures for the Reconsideration Committee.”
Prior to the hearing on Liberty’s reconsideration
request, Liberty filed a motion to disqualify Administrator Terry
4
(...continued)
and the chairpersons of the statewide council, the
review panel, the plan development committee of the
statewide council, and the appropriate subarea health
planning council. The administrator shall be the
chairperson of the reconsideration committee. A
request for a public hearing shall be deemed by the
reconsideration committee to have shown good cause,
if:
. . . .
(5) The decision of the administrator differs
from the recommendation of the statewide
council.
5
HAR § 11-186-82(a) (1988) provides procedures for requesting
reconsideration, and for the reconsideration process.
6
Elaine Slavinsky, chairperson of the Tri-Isle Subarea Health
Planning Council, participated in the June 14, 2010 meeting, but later recused
herself and was replaced by Anne Trygstad.
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from the Reconsideration Committee pursuant to HAR § 11-1-
25(a)(4) and (5),7 on the ground that he could not sit in review
of his own decision and had a personal bias or prejudice that
would prevent him from rendering a fair and impartial decision.
Specifically, Liberty argued:
In the present matter, HAR § 11-1-25 mandates
Terry’s disqualification from the reconsideration
hearing because, not only did Terry substantially
participate in the certificate of need review process
but, as the SHPDA administrator, he was the ultimate
decision-maker on the Application. Moreover, Terry
unilaterally approved the Application despite the
recommended rejections by the CON Review Panel and
Statewide Council, without providing a written
explanation as required by agency rule. Terry further
has a personal bias or prejudice which will prevent a
fair and impartial decision on this contested case.[8]
Rainbow opposed Liberty’s motion. Rainbow argued that
HRS § 323D-47 mandates that the SHPDA administrator serve as a
member of the Reconsideration Committee, even if the
administrator is reviewing his or her own decision. Rainbow also
argued that, to the extent HAR § 11-1-25 conflicts with HRS
§ 323D-47, HRS § 323D-47 governs. Additionally, Rainbow argued
7
HAR § 11-1-25 (2005) provides in pertinent part:
Disqualification. (a) A hearings officer, director, or
member of an attached entity is disqualified from
hearing or deciding a contested case if the hearings
officer, director, or member of the attached entity:
. . . .
(4) Has substantially participated in making
the decision or action contested; or
(5) Has a personal bias or prejudice
concerning a party or matter that will
prevent a fair and impartial decision
involving that party or matter.
8
Liberty argued, inter alia, that Administrator Terry exhibited
personal bias or prejudice by approving the CON application despite the votes
to reject the application by the CON Review Panel and the SHCC.
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that the SHPDA disqualification rules set forth in HAR chapters
11-185 and 11-186 applied, rather than HAR § 11-1-25. Finally,
Rainbow argued that Liberty’s allegation of Administrator Terry’s
personal bias was “unfounded and frivolous.”
Liberty also filed a motion to disqualify a second
Reconsideration Committee member, Anne Trygstad, pursuant to HAR
§ 11-1-25(a)(2).9 Liberty alleged that Trygstad is the sister-
in-law of Dr. George Talbot, who Liberty described as Kaiser’s
“physician-in-charge of Maui[.]” Liberty argued that Kaiser was
a party to the proceeding and/or a party’s representative, and
that Dr. Talbot offered testimony in favor of Rainbow’s CON
application at the hearings before each of the three review
panels. Liberty also argued that Trygstad should be disqualified
pursuant to HAR § 11-1-25(a)(5) because she had a personal bias
or prejudice due to her relationship to Dr. Talbot.
Rainbow opposed Liberty’s motion to disqualify
Trygstad. Along with its motion, Rainbow submitted a declaration
from Dr. Talbot in which he stated:
1. I am employed by the Hawaii Permanente
Medical Group (“HPMG”), a Hawaii corporation that
contracts with [Kaiser] to provide physician services
for members of [Kaiser] and other patients seen at
Kaiser’s medical facilities in Hawai#i.
2. I am currently the HPMG physician in charge
of Maui and in that role, I oversee the physician
services for Kaiser’s Maui clinics, which includes the
Kaiser Wailuku Medical Clinic. I am not in charge of
the administrative oversight of the Wailuku Medical
9
HAR § 11-1-25(a)(2) (2005) requires disqualification if a person
is “related within the third degree by blood or marriage to any party to the
proceeding or any party’s representative or attorney[.]”
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Clinic, nor am I in charge of the affiliated health
care services provided by non-physicians at the
Wailuku Medical Clinic. The administrative operation
of the Wailuku Clinic is overseen by employees of the
Kaiser Foundation Hospitals, Inc., a separate
corporation that owns and/or manages Kaiser’s
hospital and clinic facilities and employs certain
affiliated care providers for those facilities.
3. I am the brother-in-law of Anne Trygstad.
Other than testimony I presented to the Tri-Isle
Subarea Council at its December 3, 2009 public meeting
on [Rainbow’s CON] Application, at which Ms. Trygstad
was present, I have had no communication with Ms.
Trygstad in the past two or three years.
4. I own a home in the same subdivision as Ms.
Trygstad owns a home. The subdivision consists of over
20 separate houses. My house is at the opposite end
of the subdivision from the house owned by Ms.
Trygstad.
5. I did not participate in the preparation of
the Rainbow CON Application. My only involvement in
the CON proceedings has been as a witness, not as a
party. I am not an employee or representative of
Rainbow.
The Reconsideration Committee denied Liberty’s
disqualification motions. The Reconsideration Committee did not
state its reasoning on the record.
Following a reconsideration hearing,10 the
Reconsideration Committee issued its Decision unanimously
approving the conditional certification of Rainbow’s application.
The Reconsideration Committee found that “[i]t was unconstested
that Liberty had the burden of proof in this Reconsideration
10
Thirty-one individuals presented testimony at the hearing. Each
individual was afforded a maximum of two and a half minutes to testify. Ten
individuals testified against the CON. One individual testified as a neutral.
Twenty individuals testified in favor of the CON, including Dr. Talbot and six
other individuals who identified themselves as being professionally affiliated
with a Kaiser entity.
In addition, several parties were afforded five minutes to
testify. First, representatives of Liberty and of Unite Here! Local 5, which
also sought reconsideration of the Decision on the Merits, testified against
the CON for five minutes each. Subsequently, the President and Executive
Medical Director of Hawaii Permanente Medical Group testified in favor of the
CON on behalf of Rainbow, also for five minutes.
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proceeding pursuant to HRS § 91-10(5) because Liberty initiated
the Reconsideration proceeding and acknowledged in writing its
burden of proof.” The Reconsideration Committee also made
detailed findings and conclusions regarding the ways in which
Rainbow’s CON application either met the CON criteria, or would
meet the criteria if modified by the conditions set forth in the
Committee’s decision. Accordingly, the Reconsideration Committee
ordered that a conditional CON be approved and issued, with
Rainbow to modify its proposal to incorporate the following
conditions: that (1) Kaiser members be permitted to receive
dialysis services from Liberty “for as long as they wish”; (2)
Rainbow accept all dialysis patients regardless of ability to
pay; and (3) Rainbow and Kaiser provide chronic renal dialysis
services to Hana and Molokai, should Liberty cease providing
services to those communities within 10 years of the Decision on
the Merits.
B. Circuit court appeal
Liberty appealed the Reconsideration Decision to the
circuit court, raising numerous points of error. Relevant to the
issues on appeal, Liberty argued in its opening brief that the
Reconsideration Committee erred in denying its motions to
disqualify Administrator Terry and Trygstad. Liberty also argued
that the Reconsideration Committee failed to review Rainbow’s
application de novo, and “thereby improperly placed the burden of
proof on Appellant Liberty in contradiction of HAR § 11-186-
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42[.]”
The circuit court held a hearing on Liberty’s appeal
and orally ruled that “Administrator Terry should have
automatically disqualified himself from sitting on the
reconsideration committee and his failure to do so was error.”
Accordingly, the circuit court stated that it would remand to
SHPDA with instructions to hear the reconsideration request with
an acting SHPDA administrator other than Terry.
Rainbow subsequently filed an ex parte motion for an
expedited status conference to address this court’s holding in
Waikiki Resort Hotel, Inc. v. City and County of Honolulu, 63
Haw. 222, 624 P.2d 1353 (1981), and the ICA’s holding in Hui
Malama Aina O Ko#olau v. Pacarro, 4 Haw. App. 304, 666 P.2d 177(1983). Rainbow argued that, pursuant to these cases, an
agency’s decision will not be invalidated on the ground that a
disqualified official participated in the decision, so long as
the decision was passed by a majority of legally competent
members. Accordingly, Rainbow argued, Liberty failed to meet its
burden of establishing a legal basis for remand. Liberty opposed
the motion, arguing, inter alia, that Rainbow’s arguments were
untimely, the motion was procedurally improper, and Waikiki
Resort Hotel was distinguishable.
The circuit court construed Rainbow’s motion as a
motion for reconsideration, and denied it without a hearing on
the ground that Rainbow “waived its right to assert those cases
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and make related arguments due to failure to cite those cases in
its answering brief.” The circuit court subsequently issued a
written order granting Liberty’s appeal on the ground that
Administrator Terry should have been disqualified, and remanding
to SHPDA with instructions to hold the reconsideration hearing
with an acting SHPDA administrator other than Administrator
Terry.
Liberty thereafter attempted to draft a proposed final
judgment. Rainbow objected to Liberty’s proposed final judgment
because, inter alia, the circuit court had not resolved all of
the issues and claims raised in Liberty’s appeal. SHPDA also
objected to Liberty’s proposed final judgment and submitted its
own proposed final judgment, which would have granted judgment in
favor of Liberty on its first claim for relief relating to
Administrator Terry and dismissed all other claims. Liberty
subsequently submitted a revised proposed final judgment.
While Liberty’s revised proposed final judgment was
pending, the circuit court sua sponte requested supplemental
briefing on, inter alia, “whether all remaining issues should be
decided on the merits, including issues related to Waikiki Resort
Hotel . . . and/or Hui Malama Aina O Ko#olau[.]” Following the
receipt of supplemental briefing and a hearing, the circuit court
issued an order affirming the Reconsideration Decision in its
entirety. The circuit court reiterated its conclusion that the
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Reconsideration Committee erred in failing to disqualify
Administrator Terry, but held that the error was harmless
pursuant to Waikiki Resort Hotel. The circuit court also
affirmed the Reconsideration Committee’s retention of Anne
Trygstad on the ground that the Reconsideration Committee’s
determination that Dr. Talbot was not a party or a party’s
representative was not clearly erroneous. Finally, the circuit
court concluded that Liberty was judicially estopped from
contesting its burden of proof because it had represented to the
Reconsideration Committee that Liberty bore the burden of proof.
The circuit court also affirmed on other issues unrelated to this
appeal.
The circuit court filed its Final Judgment on
December 13, 2011, entering judgment in favor of SHPDA and
Rainbow and against Liberty. Liberty timely filed a notice of
appeal on January 10, 2012.
C. Appeal to this court11
Liberty raises four points of error in its appeal:
(1) The Circuit Court abused its discretion by
reconsidering three of its prior orders and
entertaining Rainbow’s belated argument that the
Reconsideration Committee’s failure to
disqualify Terry should be excused as harmless
error under Waikiki.
. . . .
(2) The Circuit Court erred in concluding that the
Reconsideration Committee’s error in failing to
11
This court granted Liberty’s application to transfer its appeal
from the Intermediate Court of Appeals (ICA) to this court.
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disqualify Ronald Terry was harmless.[12]
. . . .
(3) The Reconsideration Committee erred in refusing
to disqualify Anne Trygstad from serving on the
Reconsideration Committee, and the Circuit Court
erred in upholding this decision.
. . . .
(4) The Reconsideration Committee erroneously placed
the burden of proof on Liberty rather than
Rainbow.[13]
Rainbow raises a single point of error in its appeal:
“The circuit court erred when it determined in its December 13,
2011 Order that Administrator Terry should have been disqualified
due to the application of HAR § 11-1-25 and based its Final
Judgment on that portion of the December 13, 2011 Order.”
(Record citations omitted). Rainbow argues that “HRS [c]hapter
323D, and HRS § 323D-47 in particular, make clear that the SHPDA
Administrator can and should participate in the Decision on the
Merits and serve on the Reconsideration Committee that reviews
such decisions.” (Emphasis in original).
Although “Rainbow agrees with the ultimate ruling of
the circuit court in entering Final Judgment in favor of
Rainbow,” it nonetheless seeks review of its point of error to
12
Because we conclude that neither Administrator Terry nor Trygstad
was disqualified, we do not reach Liberty’s points of error regarding the
harmlessness of Administrator Terry’s participation.
13
Liberty acknowledges that, before the Reconsideration Committee,
it “erroneously took the position that, because it had requested
reconsideration, it bore the burden of proof.” Liberty also acknowledges that
it is estopped from taking a contrary position on appeal, and from raising
this issue as an independent ground for reversal. Nevertheless, Liberty
argues that, if this court remands for reconsideration before a new
Reconsideration Committee based on Liberty’s disqualification arguments, we
should also order the Reconsideration Committee to apply the “proper
allocation of the burden of proof[.]” Because we affirm the Reconsideration
Decision, we do not reach this point of error.
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ensure that “Liberty (and others) cannot use the circuit court’s
erroneous holding regarding HAR § 11-1-25 and the Administrator’s
‘disqualification’ from the Reconsideration Committee as law of
the case here or through offensive use of collateral estoppel in
any other proceedings.”
SHPDA did not file an appeal or cross-appeal, but did
file a unified answering brief in response to both Liberty’s and
Rainbow’s appeals. SHPDA’s answering brief generally supported
Rainbow’s arguments in both the appeal and the cross-appeal.
II. Standards of Review
A. Review of agency decisions
Review of a decision made by the circuit court upon its
review of an administrative decision is a secondary appeal. Ahn
v. Liberty Mut. Fire Ins. Co., 126 Hawai#i 1, 9, 265 P.3d 470,
478 (2011) (citation omitted). The circuit court’s decision is
reviewed de novo. Id. The agency’s decision is reviewed under
the standards set forth in HRS § 91-14(g). Id. HRS § 91-14(g)
(1993) provides:
(g) Upon review of the record the court may affirm the
decision of the agency or remand the case with
instructions for further proceedings; or it may
reverse or modify the decision and order if the
substantial rights of the petitioners may have been
prejudiced because the administrative findings,
conclusions, decisions, or orders are:
(1) In violation of constitutional or
statutory provisions; or
(2) In excess of the statutory authority or
jurisdiction of the agency; or
(3) Made upon unlawful procedure; or
(4) Affected by other error of law; or
(5) Clearly erroneous in view of the reliable,
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probative, and substantial evidence on the
whole record; or
(6) Arbitrary, or capricious, or characterized
by abuse of discretion or clearly
unwarranted exercise of discretion.
“Under HRS § 91-14(g), conclusions of law are
reviewable under subsections (1), (2), and (4); questions
regarding procedural defects under subsection (3); findings of
fact under subsection (5); and an agency’s exercise of discretion
under subsection (6).” Sierra Club v. Office of Planning, 109
Hawai#i 411, 414, 126 P.3d 1098, 1101 (2006) (citation, internal
quotation marks and brackets omitted).
B. Statutory interpretation
“Statutory interpretation is a question of law
reviewable de novo.” Kaleikini v. Yoshioka, 128 Hawai#i 53, 67,
283 P.3d 60, 74 (2012) (citation omitted).
C. Interpretation of agency rules
General principles of statutory construction apply in
interpreting administrative rules. Id. “As in statutory
construction, courts look first at an administrative rule’s
language. If an administrative rule’s language is unambiguous,
and its literal application is neither inconsistent with the
policies of the statute the rule implements nor produces an
absurd or unjust result, courts enforce the rule’s plain
meaning.” Id. (citation omitted). While an agency’s
interpretation of its own rules is generally entitled to
deference, this court “does not defer to agency interpretations
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that are plainly erroneous or inconsistent with the underlying
legislative purpose.” Id. (citation and internal quotation marks
omitted).
III. Discussion
A. Administrator Terry was not disqualified from participating
in the Reconsideration Decision
In order to determine whether Administrator Terry was
disqualified from participating in the Reconsideration Decision,
this court must consider whether the Department of Health (DOH)
rule regarding disqualification, HAR § 11-1-25(a)(4), is
applicable to the Reconsideration Committee members.14 As
explained in detail below, HAR § 11-1-25(a)(4) prevents a
hearings officer from hearing or deciding a contested case in
which he or she “substantially participated in making the
decision or action contested[.]” Because Administrator Terry
made the initial decision to approve Rainbow’s CON application,
Liberty argues that he was disqualified from the reconsideration
hearing.
Rainbow argues that this rule is inapplicable here
because it would conflict with HRS § 323D-47, which, Rainbow
argues, requires the Administrator to issue the initial decision
on a CON application, chair any resulting reconsideration
committee, and participate in the reconsideration decision.
14
It is undisputed that HAR § 11-1-25, if applicable, would require
disqualification of Administrator Terry in the circumstances presented here.
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Rainbow also argues that the more specific SHPDA disqualification
rule, HAR § 11-185-32, applies in lieu of the DOH
disqualification rule, and would not require Administrator
Terry’s disqualification in the circumstances of the instant
case.
Liberty argues that there is no conflict between the
DOH rule and HRS § 323D-47 because nothing in HRS § 323D-47
requires the SHPDA Administrator to personally issue a decision
on a CON application. In addition, Liberty argues that the SHPDA
disqualification rule does not displace the DOH rule because it
covers only a narrow category of disqualifications and does not
conflict with the DOH rule.
As set forth below, the legislature, in enacting HRS
§ 323D-47, envisioned that the SHPDA Administrator would
participate in both the initial decision on a CON application and
any subsequent reconsideration decision. However, HAR § 11-1-
25(a)(4) would preclude the SHPDA Administrator from
participating in both of these decisions. Accordingly, HAR § 11-
1-25(a)(4) conflicts with HRS § 323D-47, and would be invalid if
applied in the circumstances presented here. Moreover, HAR § 11-
1-25(a)(4) is inapplicable because the more specific
disqualification rule contained in HAR § 11-185-32 governs SHPDA
hearings officers in CON proceedings. Liberty does not argue
that Administrator Terry should have been disqualified pursuant
to HAR § 11-185-32, and nothing in this rule would appear to
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require Administrator Terry’s disqualification. Accordingly,
Administrator Terry was not disqualified from participating in
the Reconsideration Decision.
1. The legislature envisioned that the SHPDA administrator
would issue the initial decision on a CON application
and participate in any reconsideration of that decision
HRS § 323D-47 governs requests for reconsideration of
SHPDA’s decision on a CON application, and provides in relevant
part:
The state agency may provide by rules adopted in
conformity with chapter 91 for a procedure by which
any person may, for good cause shown, request in
writing a public hearing before a reconsideration
committee for purposes of reconsideration of the
agency’s decision. The reconsideration committee
shall consist of the administrator of the state agency
and the chairpersons of the statewide council, the
review panel, the plan development committee of the
statewide council, and the appropriate subarea health
planning council. The administrator shall be the
chairperson of the reconsideration committee. A
request for a public hearing shall be deemed by the
reconsideration committee to have shown good cause,
if:
. . . .
(5) The decision of the administrator differs
from the recommendation of the statewide
council.
(Emphasis added).
Rainbow argues that this provision requires the SHPDA
administrator to sit in reconsideration of his or her own
decision because it requires that the administrator issue the
initial decision on a CON application, as well as “be a member
of, [and] also serve as the chairperson of, any Reconsideration
Committee tasked with deciding a challenge to a decision by the
Administrator which differs from the recommendation of the SHCC.”
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Liberty argues that this provision does not require the
administrator to personally issue the initial decision on a CON
application and, thus, does not require that the administrator
sit in reconsideration of his or her own decision.15
Liberty is correct that nothing in HRS § 323D-47, nor
any other provision of chapter 323D, explicitly states that the
administrator must personally issue the initial decision on a CON
application. See HRS chapter 323D. Rather, HRS chapter 323D
repeatedly references the CON being issued by the “state agency,”
see, e.g., HRS § 323D-43(a); HRS § 323D-44(b), meaning SHPDA, see
HRS § 323D-2. Similarly, the relevant administrative rules state
that the decision on the merits will be issued by “the agency,”
and do not specify that the agency must act through its
administrator. HAR § 11-186-70.
Nevertheless, the plain language of HRS § 323D-47
reflects the legislature’s understanding that the administrator
is responsible for issuing the decision on a CON application on
behalf of the agency. Pursuant to HRS § 323D-47, a person may
request a hearing “for purposes of reconsideration of the
agency’s decision” on a CON application where, inter alia, “[t]he
15
Liberty does not dispute that the administrator has the power to
issue a decision on a CON application, but rather argues that the
administrator is not required to personally issue such a decision. For
example, Liberty argues that the administrator may delegate any such decision
making authority to another, in order to preserve his or her ability to sit on
the reconsideration committee. However, as set forth below, the statute
reflects the legislature’s intent that the administrator participate in both
decisions.
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decision of the administrator differs from the recommendation of
the statewide council.” (Emphasis added). Thus, HRS § 323D-47
appears to view the decision of the agency and the decision of
the administrator as being one and the same.
Moreover, even assuming there is an ambiguity as to
whether the legislature understood that the administrator was
responsible for the initial decision on a CON application, this
interpretation is supported by legislative history. HRS § 323D-
47 was enacted along with the rest of chapter 323D in 1977. 1977
Haw. Sess. Laws Act 178, § 2 at 366-67. Under the 1977 version
of the statute, the decision on a reconsideration request was
made by the agency itself, rather than by a reconsideration
committee. Id. At that time, the statute did not provide that a
disagreement between the administrator’s decision and the SHCC’s
recommendation provided a good cause basis for reconsideration.
Id.
HRS chapter 323D was substantially amended in 1987.
1987 Haw. Sess. Laws Act 270, §§ 1-18 at 825-33. Two bills to
amend HRS chapter 323D were introduced during the 1987
legislative session: Senate Bill 749, and House Bill 1025.16
S.B. 749, 14th Leg., Reg. Sess. (1987); H.B. 1025, 14th Leg.,
16
Senate Bill 213 also was introduced during the 1987 session, and
would have repealed HRS chapter 323D and abolished SHPDA and the CON process
on the ground that it “inhibits, rather than promotes, health care cost
containment.” S.B. 213, 14th Leg., Reg. Sess., § 1 at 1, § 7 at 8 (1987).
Senate Bill 213 favored “a policy of increased, relatively unfettered
competition in the health care industry[.]” Id., § 1 at 2.
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Reg. Sess. (1987). Senate Bill 749, which ultimately did not
become law, would have amended the reconsideration process to
require that the decision on a reconsideration request be made by
the CON Review Panel, rather than the agency. S.B. 749, S.D. 1,
§ 10 at 12-14. In addition, Senate Bill 749 would have added as
a ground for reconsideration that “[t]he decision of the
administrator differs from the decision of the [SHCC].” Id.,
§ 10 at 13 (emphasis added).
The Senate Health Committee noted that the initial
proposal would “[a]uthorize the review panel to veto a decision
by the state agency regarding a certificate of need
application[.]” S. Stand. Comm. Rep. No. 574, in 1987 Senate
Journal, at 1132. However, testimony was received in opposition
to this proposal. SHPDA testified, “We do not agree with giving
the Review Panel veto authority over the administrator’s CON
decisions[.]” SHPDA, Testimony to the Senate Health Committee on
S.B. 749, 14th Leg., Reg. Sess. (Feb. 23, 1987) (emphasis added).
The Department of Health also testified, “While we are
sympathetic to the idea of some appeals mechanism over the SHPDA
Administrator’s decision, we believe that use of the review panel
may build unnecessary conflict into the Agency’s operation.”
Department of Health, Testimony to the Senate Health Committee on
S.B. 749, 14th Leg., Reg. Sess. (Feb. 23, 1987) (emphasis added).
Accordingly, the Senate Health Committee amended the bill to
delete “the review board veto power but granted the review board
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the authority to hear and rule on requests for reconsideration of
a state agency decision[.]” S. Stand. Comm. Rep. No. 574, in
1987 Senate Journal, at 1132.
Meanwhile, House Bill 1025, as initially introduced,
did not contain any amendments that would have affected the CON
reconsideration process.17 See H.B. 1025, 14th Leg., Reg. Sess.
(1987). However, when the bill crossed over to the Senate, the
Senate Health Committee received testimony from SHPDA regarding
the reconsideration process:
As the law now stands, the only appeal (short of
court) of an Agency’s decision is to request the
Agency itself to reconsider. The Senate version would
give the reconsideration authority to the Review
Panel. The Agency does not believe that the Review
Panel should have the ultimate authority. We suggest
the reconsideration authority rest with a small
committee made up of the administrator, and the
chairpersons of the Statewide Council, the Review
Panel, the Plan Development Committee, and the
appropriate Subarea Health Planning Council. This
would provide a check and balance system with the
administrator retaining a strong position but with the
possibility of having his decision changed under
limited circumstances.
SHPDA, Testimony to the Senate Health Committee on H.B. 1025,
H.D. 1, 14th Leg., Reg. Sess., at 3 (Mar. 27, 1987) (emphasis
added).
Along with its testimony, SHPDA submitted proposed
amendments to HRS § 323D-47, which would have provided for a
17
The purposes of the bill included removing parts of the law that
were no longer pertinent due to the repeal of related federal legislation;
reforming the CON process by allowing some proposals to bypass the full review
process; increasing data gathering, analysis, and reporting; tasking SHPDA
with looking at emerging health issues; and extending the subarea councils’
authority. H. Stand. Comm. Rep. No. 63, in 1987 House Journal, at 1111; see
also H. Stand. Comm. Rep. No. 703, in 1987 House Journal, at 1439.
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reconsideration committee consisting of “the administrator and
the chairpersons of the statewide council, the review panel, the
plan development committee of the statewide council and the
appropriate subarea health planning council.” Id., attachment,
§ 13 at 20. Under SHPDA’s proposal, the administrator would be
the chairperson of the reconsideration committee. Id.,
attachment, § 13 at 20-21. In addition, SHPDA proposed adding as
a ground for reconsideration that “[t]he decision of the
administrator differs from the recommendation of the statewide
council.” Id., attachment, § 13 at 21.
The Healthcare Association of Hawaii (HAH) testified
regarding SHPDA’s proposed amendments:
With respect to a reconsideration committee under
section 13 of the agency’s proposed draft, this is
clearly the best proposal we have seen seeking to
address the controversy surrounding some past
decisions by the agency. HAH does, however, believe
that the ultimate responsibility for a decision of the
agency should rest with the administrator, as it
currently does.
HAH, Testimony to the Senate Health Committee on H.B. 1025, H.D.
1, 14th Leg., Reg. Sess., at 2 (Mar. 30, 1987) (emphasis added).
The Senate Health Committee amended the bill,
consistent with SHPDA’s proposal, to “[p]rovide[] for a
reconsideration panel for CON’s consisting of the administrator
of the statewide agency, the chairperson of the statewide
council, the appropriate subarea councils, the review panel, and
the plan development committee of the statewide council, with the
SHPDA administrator as chairperson of the panel[.]” S. Stand.
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Comm. Rep. No. 1089, in 1987 Senate Journal, at 1365. The final
bill enacted into law is in all relevant respects substantively
identical to that proposed by SHPDA. Compare SHPDA, Testimony to
the Senate Health Committee on H.B. 1025, H.D. 1, 14th Leg., Reg.
Sess., attachment, § 13 at 20-21 with HRS § 323D-47.
Accordingly, with these amendments, the legislature added the
provision that required the good cause determination to be made
by a reconsideration committee, rather than solely by the agency.
1987 Haw. Sess. Laws Act 270, § 13 at 832. In addition, the
legislature added the provision that specified that a person may
request a hearing “for purposes of reconsideration of the
agency’s decision” where “[t]he decision of the administrator
differs from the recommendation of the statewide council.” Id.
(emphasis added).
At the time the legislature amended the statute, the
CON review process had been in place for approximately ten years.
The testimony in support of the 1987 amendments indicates that
the legislature was aware that the SHPDA administrator was
responsible for the agency’s decisions on a CON application prior
to these amendments. See HAH, Testimony to the 1987 Legislature
on H.B. 1025, H.D. 1, 14th Leg., Reg. Sess., at 2 (Mar. 30, 1987)
(“[T]he ultimate responsibility for a decision of the agency
should rest with the administrator, as it currently does.”);
SHPDA, Testimony to the Senate Health Committee on H.B. 1025,
H.D. 1, 14th Leg., Reg. Sess., at 3 (Mar. 27, 1987) (“This would
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provide a check and balance system with the administrator
retaining a strong position but with the possibility of having
his decision changed under limited circumstances.”).
Accordingly, the legislative history reflects that the
legislature was aware of the administrator’s participation in the
initial CON decision, but nonetheless deliberately included the
administrator in the reconsideration committee to maintain the
administrator’s “strong position” with regard to CON
applications. Accordingly, HRS § 323D-47 reflects the
legislature’s intent that the administrator participate in both
the initial decision on the merits and the reconsideration
decision.
2. HAR § 11-1-25(a)(4) conflicts with HRS § 323D-47
Despite the clear legislative intent for the
administrator to participate in both the decision on the merits
and the reconsideration decision, application of HAR § 11-1-
25(a)(4) to the Reconsideration Committee would prohibit the
administrator from carrying out both of these duties. HAR § 11-
1-25 provides in relevant part:
(a) A hearings officer, director, or member of an
attached entity is disqualified from hearing or
deciding a contested case if the hearings officer,
director, or member of the attached entity:
. . . .
(4) Has substantially participated in making the
decision or action contested[.]
An agency’s authority “is limited to enacting rules
which carry out and further the purposes of the legislation[.]”
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Puana v. Sunn, 69 Haw. 187, 189, 737 P.2d 867, 870 (1987). “It
is axiomatic that an administrative rule cannot contradict or
conflict with the statute it attempts to implement.” Agsalud v.
Blalack, 67 Haw. 588, 591, 699 P.2d 17, 19 (1985) (citations
omitted); see also Tamashiro v. Dep’t of Human Servs., 112
Hawai#i 388, 427, 146 P.3d 103, 142 (2006). As applied here, HAR
§ 11-1-25(a)(4) would prohibit the SHPDA administrator from
carrying out his or her duties as intended by the legislature and
as reflected in HRS § 323D-47. Because, HAR § 11-1-25(a)(4)
conflicts with HRS § 323D-47, it would be invalid if applied to
CON reconsideration proceedings.18
Nevertheless, Liberty argues that this interpretation
of the statute would lead to the absurd requirement that no one
other than the administrator could make the initial CON decision
and participate on behalf of SHPDA in the reconsideration
proceedings. However, nothing in the statute would require the
SHPDA administrator to personally issue the decision on a CON
application and a reconsideration in all cases. The SHPDA rules
indicate that a decision may be made by the administrator or the
acting administrator. HAR § 11-185-2 (1981) (“‘Administrator’
means the administrator or the acting administrator of the state
health planning and development agency.”). Accordingly, it would
18
HAR § 11-1-25(a)(4) is a general DOH rule that presumably applies
to various types of proceedings. Neither party suggests that the rule would
be invalid if applied to other proceedings where the legislature has not
expressed its intent for a hearings officer, director, or member to review a
decision in which he or she substantially participated.
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appear that the agency’s decision making authority rests with the
office, rather than the individual office holder. Thus, for
example, if the administrator issued the decision on the merits,
but then left his or her position, the acting administrator or a
new administrator would participate in the reconsideration
decision. HAR § 11-185-2; HRS § 323D-47.
In addition, as discussed in detail below, SHPDA’s own
disqualification rule, HAR § 11-185-32 (1981), provides that a
hearings officer may be disqualified for certain conflicts of
interest:
Disqualification of hearing officer. (a) No hearing
officer shall preside at any public hearing relating
to any matter in which the hearing officer, the
hearing officer’s spouse, or the hearing officer’s
child has (or within the twelve months preceding the
hearing, had) any substantial ownership, directorship,
officership, employment, prospective employment for
which negotiations have begun, medical staff,
fiduciary, contractual, creditor, debtor,
consultative, pecuniary, or business interest.
(b) Where any other conflict of interest exists,
the hearing officer shall be disqualified from
presiding at the public hearing. The provisions of
chapter 84, Hawaii Revised Statutes, and the
decisions, advisory opinions, and informal advisory
opinions of the state ethics commission shall serve as
guidelines in determining whether a conflict of
interest exists.
Thus, if the administrator were disqualified from the
initial decision on the merits pursuant to HAR § 11-185-32, an
acting administrator could participate in both the decision on
the merits and the reconsideration decision. HAR § 11-185-2; HRS
§ 323D-47.
Moreover, unlike HAR § 11-1-25(a)(4), HAR § 11-185-32
does not conflict with the legislature’s intent behind the
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reconsideration process set forth in HRS § 323D-47. Although the
legislature generally intended the administrator to participate
in both the decision on the merits and the reconsideration
decision, it also presumably was aware of prohibitions against
conflicts of interest for public officers and employees, see HRS
§ 84-14(a),19 and would not have intended that the administrator
participate in a decision where such a conflict existed.20 HAR §
11-185-32 is consistent with HRS § 84-14. Compare HAR § 11-185-
32 with HRS § 84-14.
Significantly, these conflict of interest provisions
19
HRS § 84-14(a) (1993) provides:
No employee shall take any official action directly
affecting:
(1) A business or other undertaking in which he has a
substantial financial interest; or
(2) A private undertaking in which he is engaged as
legal counsel, advisor, consultant, representative, or
other agency capacity.
A department head who is unable to disqualify himself
on any matter described in items (1) and (2) above
will not be in violation of this subsection if he has
complied with the disclosure requirements of section
84-17; and
A person whose position on a board, commission, or
committee is mandated by statute, resolution, or
executive order to have particular qualifications
shall only be prohibited from taking official action
that directly and specifically affects a business or
undertaking in which he has a substantial financial
interest; provided that the substantial financial
interest is related to the member’s particular
qualifications.
20
In addition, as discussed in detail below, SHPDA hearings officers
would also be subject to disqualification where they exhibit bias or
prejudice, or there is an appearance of impropriety or partiality. Cf. State
v. Ross, 89 Hawai#i 371, 377, 974 P.2d 11, 17 (1998).
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are much more limited than those set out in HAR § 11-1-25. Under
HAR § 11-185-32 and HRS § 84-14, the administrator is able to
participate in both the decision on the merits and the
reconsideration decision, so long as he or she is not
disqualified by a limited category of personal interests. In
contrast, application of HAR § 11-1-25, as Liberty urges, would
turn this limited exception into the rule, disqualifying the
administrator from participation in all reconsideration decisions
in which he or she has made the initial decision on behalf of
SHPDA on the CON application. Such a blanket rule is contrary to
the legislature’s intent, and HAR § 11-1-25(a)(4) therefore
cannot be applied in the instant case. See Agsalud, 67 Haw. at
591, 699 P.2d at 19.
In sum, HAR § 11-1-25(a)(4) would conflict with HRS
§ 323D-47 if applied in the instant case. Instead, the SHPDA
disqualification rule contained in HAR § 11-185-32 applies in
lieu of HAR § 11-1-25. Liberty has not asserted that
Administrator Terry should have been disqualified pursuant HAR
§ 11-185-32, and we find no basis for his disqualification under
this provision.21 Accordingly, the circuit court erred in
21
Liberty argued below that Administrator Terry should be
disqualified pursuant to HAR § 11-1-25(a)(5) based on personal bias or
prejudice because he approved Rainbow’s CON application despite votes against
the application by the CON Review Panel and the SHCC. However, these
allegations are not sufficient to cause a reasonable person to question
Administrator Terry’s impartiality. See Ross, 89 Hawai#i at 380, 974 P.2d at
20. First, the recommendations of the CON Review Panel and the SHCC were not
binding on Administrator Terry. HAR § 11-186-45(e) (1981). Second, another
review panel, the Tri-Isle Subarea Health Planning Council, recommended
(continued...)
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concluding that Administrator Terry was disqualified from
participating in the Reconsideration Decision.
B. Trygstad was not disqualified from participating in the
Reconsideration Decision
Liberty argues that Trygstad should have been
disqualified from sitting on the Reconsideration Committee
pursuant to HAR § 11-1-25(a)(2).22 Liberty alleges that Trygstad
should be disqualified because her brother-in-law, Dr. George
Talbot, is the “Kaiser Permanente physician-in-charge for Maui”
and testified on behalf of Rainbow in support of its CON
application. Accordingly, Liberty argues, Dr. Talbot was a
“party’s representative” and, therefore, Trygstad’s
disqualification was mandatory.
Rainbow argues that HAR § 11-1-25 is inapplicable to
SHPDA proceedings, and that the more specific SHPDA
disqualification rule, HAR § 11-185-32, should apply instead.23
21
(...continued)
approval of the application. Third, the conditions that Administrator Terry
imposed on Rainbow’s application address some of the concerns that led the CON
Review Panel and SHCC to recommend denying the application. Finally, four
other independent members of the Reconsideration Committee agreed to approve
Rainbow’s CON application, despite the recommendations of the CON Review Panel
and the SHCC.
22
HAR 11-1-25(a)(2) provides for disqualification where a hearings
officer, director or member “[i]s related within the third degree by blood
or marriage to any party to the proceeding or any party’s representative or
attorney[.]”
23
HAR § 11-185-32(a) also addresses disqualification based on family
relationships, but to a more limited degree, providing for disqualification
where:
the hearing officer, the hearing officer’s spouse, or
the hearing officer’s child has (or within the twelve
(continued...)
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Rainbow also argues that Dr. Talbot was not a representative of
Kaiser as envisioned under HAR § 11-1-25 because Dr. Talbot’s
employer (Hawaii Permanente Medical Group (HPMG)), and Kaiser are
“separate corporate entities.”
We conclude that HAR § 11-1-25 is inapplicable here
because the more specific SHPDA disqualification rule contained
in HAR § 11-185-32 governs SHPDA hearings officers.
The DOH rules of practice and procedure are contained
in HAR chapter 11-1. HAR § 11-1-1 (2005) provides a “Statement
of scope and purpose” for HAR chapter 11-1, and provides in
relevant part:
(a) This chapter governs the practice and procedure
before the department of health, State of Hawaii,
provided that an attached entity may adopt and shall
be governed by its own specific rules of practice and
procedure if it has rulemaking authority, and provided
that the director may adopt more specific rules of
practice and procedure for any specific program, and
those more specific rules shall govern the practice
and procedure in proceedings for that program. Where
such specific rules fail to cover particular practices
and procedures, then these rules shall apply.
(Emphasis added).
Here, SHPDA is an “attached entity” of the DOH with
rulemaking authority. HAR § 11-1-3 (2005); HRS § 323D-44(b).
Accordingly, SHPDA has authority pursuant to HAR § 11-1-1 to
adopt its own specific rules of practice and procedure. SHPDA
23
(...continued)
months preceding the hearing, had) any substantial
ownership, directorship, officership, employment,
prospective employment for which negotiations have
begun, medical staff, fiduciary, contractual,
creditor, debtor, consultative, pecuniary, or business
interest.
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exercised this authority by adopting HAR chapter 11-185.
Accordingly, chapter 11-185 “shall govern the practice and
procedure” in SHPDA proceedings, unless it “fail[s] to cover
particular practices and procedures[.]” HAR § 11-1-1.
As discussed above, HAR § 11-185-32 is SHPDA’s general
disqualification rule, and provides in relevant part:
(a) No hearing officer shall preside at any
public hearing relating to any matter in which the
hearing officer, the hearing officer’s spouse, or the
hearing officer’s child has (or within the twelve
months preceding the hearing, had) any substantial
ownership, directorship, officership, employment,
prospective employment for which negotiations have
begun, medical staff, fiduciary, contractual,
creditor, debtor, consultative, pecuniary, or business
interest.
(b) Where any other conflict of interest exists,
the hearing officer shall be disqualified from
presiding at the public hearing. The provisions of
chapter 84, Hawaii Revised Statutes, and the
decisions, advisory opinions, and informal advisory
opinions of the state ethics commission shall serve as
guidelines in determining whether a conflict of
interest exists.[24]
24
HAR chapter 11-186 governs the CON process, and also contains a
separate conflict of interest provision that is substantially similar to HAR
§ 11-185-32:
(a) No member of a subarea council, a countywide
review committee, the review panel, or the statewide
council shall vote on any matter respecting an
applicant with which the member, the member’s spouse,
the member’s child, or the member’s parent has (or
within the twelve months preceding the vote, had) any
substantial ownership, directorship, officership,
employment, prospective employment for which
negotiations have begun, medical staff, fiduciary,
contractual, creditor, debtor, or consultative
relationship.
(b) If such a relationship exists or has existed,
the member shall make a written disclosure of the
relationship before any action is taken with respect
to the applicant by the subarea council, countywide
review committee, review panel, or statewide council
to which the member belongs and the member shall make
the relationship public in any meeting in which action
is to be taken with respect to the applicant.
(continued...)
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Liberty argues that this rule does not displace “the
more comprehensive provisions” of HAR § 11-1-25 because HAR
§§ 11-1-25 and 11-185-32 do not conflict. However, Liberty’s
argument is misplaced. In general, where rules overlap in their
application but do not irreconcilably conflict, effect will be
given to both, if possible. See Cnty. of Hawai#i v. C&J Coupe
Family Ltd. P’ship, 120 Hawai#i 400, 405, 208 P.3d 713, 718
(2009). However, HAR § 11-1-1 qualifies this general rule by
stating that, “specific rules of practice and procedure for any
specific program . . . shall govern the practice and procedure in
proceedings for that program.” Thus, HAR § 11-1-1 applies only
where “such specific rules fail to cover particular practices and
procedures[.]” (Emphasis added). As a result, the relevant
question is not whether HAR §§ 11-185-32 and 11-1-25 conflict,
24
(...continued)
(c) Where any other conflict of interest exists, a
member of a subarea council, countywide review
committee, review panel, or statewide council shall be
disqualified from voting in the review of an
application. The provisions of chapter 84, Hawaii
Revised Statutes, and the decisions, advisory
opinions, and informal advisory opinions of the state
ethics commission shall serve as guidelines in
determining whether a conflict of interest exists.
HAR § 11-186-51.
Because Trygstad participated in the Reconsideration Committee as
a representative of the Tri-Isle Subarea Health Planning Council, this
provision also could be read to apply to her disqualification. See HAR § 11-
186-51(a) (providing that a member of a subarea council shall not vote “on any
matter respecting an applicant” where the member has a conflict of interest).
However, HAR § 11-186-51 also could be read as applying solely to actions
taken “by the subarea council, countywide review committee, review panel, or
statewide council[,]” but not the Reconsideration Committee. See HAR § 11-
186-51(b). Because HAR §§ 11-186-51 and 11-185-32 do not differ materially,
and because SHPDA’s and Rainbow’s arguments rely on HAR § 11-185-32, we need
not resolve whether HAR § 11-186-51 also applies.
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but rather whether HAR § 11-185-32 “fail[s] to cover”
disqualification practices and procedures, such that HAR chapter
11-1 applies. Because HAR § 11-185-32 does cover
disqualification practices and procedures for SHPDA hearings
officers, it applies in lieu of HAR § 11-1-25.
Nevertheless, Liberty argues that HAR § 11-1-25 applies
because it covers a broader range of disqualifications than HAR
§ 11-185-32. However, this argument is not supported by HAR
§ 11-1-1. HAR chapter 11-1 is not intended to fill every gap in
an attached entity’s more specific rules. Rather, it applies
only where an attached entity’s rules do not “cover particular
practices and procedures[.]” Here, SHPDA’s rules cover
disqualification practices and procedures. Accordingly, DOH’s
general disqualification rule does not apply, even though it
would provide for disqualification under a broader range of
circumstances. This is logical given that, in certain
circumstances, such as those presented here, the general DOH
rules may conflict with the legislature’s intent that certain
practices or procedures be performed by specific administrative
authorities.
Liberty also argues that, because HAR § 11-185-32
contains no express prohibition against a biased or prejudiced
hearings officer, application of only HAR § 11-185-32 would allow
a hearings officer who harbored a bias or prejudice against a
party to sit on the Reconsideration Committee. Liberty further
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argues that, if the phrase “any other conflict of interest” in
HAR § 11-185-32(b) is read broadly to include bias or prejudice,
it must also be read to include all of the bases for
disqualification contained in HAR § 11-1-25.
These arguments are unpersuasive. First, bias or
prejudice is a form of conflict of interest. See, e.g., Daiichi
Hawaii Real Estate Corp. v. Lichter, 103 Hawai#i 325, 339-40, 82
P.3d 411, 425-26 (2003) (“Under Hawai#i law, ‘evident partiality’
sufficient to vacate an arbitration award may be demonstrated
when a conflict of interest exists with the arbitrator. . . .
Hawai#i courts have explained that evident partiality not only
exists when there is actual bias on the part of the arbitrator,
but also when undisclosed facts demonstrate a ‘reasonable
impression of partiality.’”) (citation omitted) (emphasis added).
Accordingly, it is not necessary to resort to HAR § 11-1-25 to
conclude that “conflict of interest” includes “bias or
prejudice.”
Second, bias or prejudice would be a basis for
disqualification even if the Department of Health and SHPDA
failed to promulgate any rules regarding disqualification. This
is because due process requires disqualification where
“circumstances fairly give rise to an appearance of impropriety
and reasonably cast suspicion on [the adjudicator’s]
impartiality.” Ross, 89 Hawai#i at 377, 974 P.2d at 17 (citation
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and ellipses omitted).25 Otherwise, the multitude of agency
disqualification rules that fail to directly address bias or
prejudice would absurdly allow for participation by biased or
prejudiced adjudicators.26 Accordingly, Liberty is incorrect in
arguing that HAR § 11-185-32 is inadequate because it does not
directly address bias or prejudice.
Finally, although Liberty argued in the circuit court
that the Reconsideration Committee members were not hearings
officers and that HAR § 11-185-32 was therefore inapplicable, it
has abandoned this argument on appeal. Indeed, Liberty now
asserts that both rules “must be given effect.” Accordingly,
Liberty has waived any argument that HAR § 11-185-32 is
inapplicable to the Reconsideration Committee members. Hawai#i
25
In Ross, the applicable statute expressly provided for
disqualification where a judge had a “personal bias or prejudice[.]” 89
Hawai#i at 376, 974 P.2d at 16. However, this court looked beyond the statute
to due process to determine, not actual bias or prejudice, but “whether
circumstances fairly give rise to an appearance of impropriety and reasonably
cast suspicion on the judge’s impartiality.” Id. at 377, 974 P.2d at 17
(internal quotation marks, ellipses, and brackets omitted). Because of the
statutory disqualification requirement, this court was not required to
determine whether a judge’s actual bias or prejudice would also implicate due
process. However, it would be incongruous to conclude that an appearance of
impropriety or partiality violates due process, but actual impropriety or
partiality does not.
26
See, e.g., HAR §§ 3-90-3 (1987) (conflicts of interest for State
Foundation of Culture and the Arts), 6-23-45 (2009) (disqualification in
contested case proceedings before Department of Budget and Finance), 6-61-28
(1992) (disqualification in hearings before the Public Utilities Commission),
11-62-58 (2004) (conflicts of interest in review of wastewater management
permits), 11-175-4(c) (1988) (conflicts of interest for State Council on
Mental Health and Substance Abuse), 11-271-104 (1994) (disqualification in
contested case proceedings relating to hazardous waste management), 13-167-61
(1988) (disqualification in contested case proceedings before Commission on
Water Resource Management), 13-197-20 (1989) (disqualification in contested
case proceedings before Hawai#i Historic Places Review Board), 13-300-62
(1996) (disqualification in administrative appeals relating to burial sites
and human remains).
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Rules of Appellate Procedure Rule 28(b)(7) (“Points not argued
may be deemed waived.”). Although this issue was not addressed
in the parties’ appellate briefing, the dissent nevertheless
concludes that HAR § 11-185-32 is inapplicable because the
Reconsideration Committee members are not hearings officers.
Dissenting opinion at 18-19. We respectfully disagree.
Before the Reconsideration Committee and on appeal,
SHPDA has consistently argued that HAR § 11-185-32 governs the
disqualification of Reconsideration Committee members. As SHPDA
explained in the circuit court, the SHPDA rules preceded the DOH
rules by many years. SHPDA stated,
So for years, the two chapters, 11-185 and 11-
186 specifically in the certificate of need matters
governed. Perhaps Rule No. 11-185-32 is not as
comprehensive or as eloquent as it could be if revised
today, but it is a clear disqualification of hearing
officer rule. And in this instance in the
reconsideration committee situation it is the
reconsideration committee who is the hearing officer
of the reconsideration.
. . . . And these rules were promulgated with
the understanding that the public hearing that would
follow the grant of a reconsideration would be heard
by the reconsideration committee.
(Emphasis added).
SHPDA’s interpretation of its own rules is entitled to
deference unless it is clearly erroneous or inconsistent with the
underlying legislative purpose. See Kaleikini, 128 Hawai#i at
67, 283 P.3d at 74.
HAR § 11-185-32 must be construed in pari materia with
HRS § 323D-47 and the other rules governing SHPDA and the CON
process. HRS § 1-16 (1993) (“Laws in pari materia, or upon the
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same subject matter, shall be construed with reference to each
other.”). HRS § 323D-47 and HAR § 11-186-82(d) make clear that,
where there is good cause for reconsideration, the
Reconsideration Committee must hold a public hearing and then
issue a decision on behalf of SHPDA.27 It is beyond dispute that
the hearing conducted by the Reconsideration Committee in the
instant case constituted a public hearing. See HAR § 11-185-30
(“At any public hearing held by the agency, any person shall have
the right to present oral or written arguments and evidence
relevant to the matter which is the subject of the hearing.”).
The Reconsideration Committee members presided at this hearing,
ruling on evidentiary objections and motions, and issuing the
Reconsideration Decision. Accordingly, it was not clearly
erroneous for SHPDA to conclude that the Reconsideration
Committee members are hearings officers whose disqualification is
governed by HAR § 11-185-32.
Moreover, although HAR § 11-185-31 indicates that a
separate hearings officer may be appointed for the purpose of
ensuring the “orderly and just conduct of the hearing,” nothing
in HAR § 11-185-31 indicates that the Reconsideration Committee
members are thereby excluded from the disqualification provisions
of HAR § 11-185-32. In other words, the fact that SHPDA
27
HAR § 11-186-82(d) states that “the committee shall schedule a
public hearing for reconsideration of the decision” and “[t]he committee shall
file a decision on the reconsideration within forty-five days after the
conclusion of the hearing.” (Emphasis added). Here, the Reconsideration
Decision was filed by all five Reconsideration Committee members.
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designated Andrew Tseu as a hearings officer to assist the
Reconsideration Committee in conducting the hearing did not
render HAR § 11-185-32 inapplicable to the Reconsideration
Committee members.
Lastly, the dissent argues that, prior to the adoption
of the DOH rules, SHPDA’s rules “did not explicitly provide
disqualification rules for reconsideration committee members,”
and, therefore, the DOH rule should apply. Dissenting opinion at
23. However, this argument is unpersuasive. Under the dissent’s
analysis, no disqualification rules would have governed the
Reconsideration Committee members from the establishment of the
Reconsideration Committee procedure in 1987 until the
promulgation of the DOH rule in 2005. Thus, according to the
dissent, during that almost 20-year period, SHPDA had conflict of
interest rules governing non-binding advisory committee members
and hearings officers who preside over non-substantive matters,
but neglected to provide any disqualification rules governing the
persons responsible for the agency’s final action on a CON
application. We decline to adopt an interpretation of the rules
that would lead to such a result. See Sierra Club v. Dep’t of
Transp., 120 Hawai#i 181, 227, 202 P.3d 1226, 1272 (2009) (“[I]t
is well-settled that statutory construction dictates that an
interpreting court should not fashion a construction of statutory
text that . . . creates an absurd or unjust result.” (internal
quotation marks and citation omitted)).
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In sum, HAR § 11-185-32 applies in the instant case.
Because Liberty has not raised any arguments to suggest that
Trygstad should have been disqualified pursuant to HAR § 11-185-
32, its arguments are without merit.
IV. Conclusion
Although we do not adopt the circuit court’s reasoning,
we affirm its December 13, 2011 final judgment, which affirmed
the Reconsideration Committee’s February 17, 2011 Reconsideration
Decision.
Daniel P. Collins for /s/ Mark E. Recktenwald
petitioner
/s/ Paula A. Nakayama
Ellen Godbey Carson for
respondent Rainbow /s/ Sabrina S. McKenna
Dialysis, LLC
Ann V. Andreas for
respondent State of Hawaii
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