AIDS Healthcare Foundation v. State Department of Health Care Services
241 Cal. App. 4th 1327
| Cal. Ct. App. | 2015Background
- AHF (AIDS Healthcare Foundation) had a Medi‑Cal contract with the California Department of Health Care Services (the Department) that provided for administrative dispute resolution under Health & Safety Code § 100171.
- AHF disputed payment rates and incentive (“Savings Share”) payments for multiple years; the Department denied AHF’s claims and AHF requested an administrative hearing.
- An in‑house Department ALJ (Dwight Nelsen) heard the matter and issued a proposed decision in AHF’s favor in part; the Director delegated review authority to the Department’s Chief ALJ (Sharon Stevenson).
- Chief ALJ Stevenson rejected the proposed decision and remanded for additional evidence to a different Department ALJ (Patricia Freeman) because ALJ Nelsen had retired.
- AHF filed a petition for writ of administrative mandamus in superior court seeking to force adoption of ALJ Nelsen’s proposed decision, contending the Department unlawfully exercised authority and its procedures violated the APA and § 100171.
- The trial court sustained the Department’s demurrer without leave to amend, holding AHF failed to exhaust administrative remedies and no exhaustion exception applied; the Court of Appeal affirmed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether AHF could seek immediate judicial review or had to exhaust administrative remedies | AHF: ALJ Nelsen’s proposed decision became final because the Department’s post‑hearing actions violated the APA and § 100171, so judicial review was proper | Dept.: The matter remained pending after lawful rejection/remand under Gov. Code §11517(c); AHF had not obtained a final agency decision and must exhaust remedies | Court: AHF’s petition was premature; administrative process had not produced a final decision and exhaustion was required |
| Whether Department procedures (using in‑house ALJs and delegation to Chief ALJ) violated the APA and § 100171 | AHF: Use of a Department ALJ (not OAH ALJ) meant the “agency itself” heard the case, triggering Gov. Code §11517(b) protections and preventing Chief ALJ from rejecting the proposed decision | Dept.: §100171 permits department‑selected in‑house ALJs and contemplates Gov. Code §11517(c) procedures; delegation to Chief ALJ to act on a proposed decision is lawful | Court: §100171 authorizes department ALJs; proceedings complied with §100171 and §11517(c); rejection/remand by Chief ALJ was lawful |
| Whether an ALJ’s improper appointment (if any) would make the ALJ’s proposed decision final | AHF: Procedural defects meant the agency could not lawfully alter the proposed decision, so it should be final | Dept.: Any appointment or procedural irregularity would require remand for proper consideration, not immediate judicial relief | Court: Even if wrong ALJ presided, remedy is remand to an authorized ALJ, not adoption of the proposed decision; ALJ Nelsen’s proposed decision was not final |
| Whether exhaustion exceptions (futility or inadequacy of administrative remedy) applied | AHF: Futility or that administrative procedures themselves were the source of injury, so exhaustion unnecessary | Dept.: No final agency position or evidence of predetermined outcome; procedures complied with statute and APA; administrative remedy adequate | Court: Neither futility nor inadequacy exceptions applied—the outcome was not predetermined and AHF challenged merits as well as procedure; exhaustion required |
Key Cases Cited
- City of San Jose v. Operating Engineers Local Union No. 3, 49 Cal.4th 597 (exhaustion requires full presentation and completion of administrative process)
- Coachella Valley Mosquito & Vector Control Dist. v. California Public Employment Relations Bd., 35 Cal.4th 1072 (grounds and policy for exhaustion doctrine and its exceptions)
- Usher v. County of Monterey, 65 Cal.App.4th 210 (definition of “agency itself” and limits on delegation)
- Automotive Management Group, Inc. v. New Motor Vehicle Bd., 20 Cal.App.4th 1002 (agency ALJs may hear cases alone under §11517(c))
- Absmeier v. Simi Valley Unified School District, 196 Cal.App.4th 311 (failure to provide required ALJ is jurisdictional and remedy is remand)
- Hohreiter v. Garrison, 81 Cal.App.2d 384 (purpose of hearing officer and agency assistance under §11517(b))
- California Water Impact Network v. Newhall County Water Dist., 161 Cal.App.4th 1464 (relationship between finality and exhaustion doctrines)