N.C. Acupuncture Licensing Bd. v. N.C. Bd. of Physical Therapy Exam'rs

N.C. Acupuncture Licensing Bd. v. N.C. Bd. of Physical Therapy Exam’rs,

2016 NCBC 31.

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

SUPERIOR COURT DIVISION

WAKE COUNTY 15 CVS 12012

NORTH CAROLINA ACUPUNCTURE

LICENSING BOARD,

Plaintiff,

v.

NORTH CAROLINA BOARD OF ORDER AND OPINION ON

PHYSICAL THERAPY EXAMINERS, DEFENDANTS’ MOTIONS TO DISMISS

ELIZABETH HENRY, AART

SCHULENKLOPPER, CORNERSTONE

PHYSICAL THERAPY, INC., and

JESSAN HAGER,

Defendants.

{1} THIS MATTER is before the Court upon (i) Defendant North Carolina

Board of Physical Therapy Examiners’ (“Physical Therapy Board” or “PT Board”)

Motion to Dismiss Amended Complaint and (ii) Defendants Elizabeth Henry, Aart

Schulenklopper, Cornerstone Physical Therapy, Inc., and Jessan Hager’s

(collectively, the “Private Defendants”) Motion to Dismiss (collectively, the

“Motions”) in the above-captioned case.

{2} The Court, having considered the Motions, briefs in support of and in

opposition to the Motions, appropriate matters of record, and the arguments of

counsel at a March 16, 2016 hearing on the Motions, hereby GRANTS the Motions.

Everett Gaskins Hancock, LLP, by E.D. Gaskins, Jr. and James M.

Hash, and Stevens Martin Vaughn & Tadych, PLLC, by Michael J.

Tadych, for Plaintiff North Carolina Acupuncture Licensing Board.

Ellis & Winters LLP, by Matthew W. Sawchak, Troy D. Shelton, and

Stephen Daniel Feldman, for Defendant North Carolina Board of

Physical Therapy Examiners.

Poyner Spruill LLP, by Andrew H. Erteschik, Caroline P. Mackie, and

John Michael Durnovich, for Defendants Elizabeth Henry, Aart

Schulenklopper, Cornerstone Physical Therapy, Inc., and Jessan

Hager.

Bledsoe, Judge.

I.

FACTUAL AND PROCEDURAL BACKGROUND

A. Factual Background

{3} Through this action, Plaintiff North Carolina Acupuncture Licensing

Board (“Plaintiff” or “Acupuncture Board”) seeks a declaration from the Court that

the practice known as “dry needling” is a form of acupuncture, over which it has

exclusive licensing powers. The Acupuncture Board further asks the Court to

enjoin the Physical Therapy Board and the Private Defendants from regulating and

practicing dry needling, respectively.

{4} The Acupuncture Board is a board created by statute. N.C. Gen. Stat. §

90-453. The Acupuncture Board is charged with implementing Chapter 90, Article

30 of the North Carolina General Statutes (the “Acupuncture Practice Act”), whose

purpose is to “promote the health, safety, and welfare of the people of North

Carolina” by regulating the licensing requirements for the practice of acupuncture.

See N.C. Gen. Stat. § 90-450 et seq.

{5} The Physical Therapy Board is also a board created by statute. N.C. Gen.

Stat. § 90-270.25. The Physical Therapy Practice Act, N.C. Gen. Stat. § 90-270.24 et

seq., charges the Physical Therapy Board with “safeguard[ing] the public health,

safety and welfare against unqualified or incompetent practitioners of physical

therapy . . . .” N.C. Gen. Stat. § 90-270.26. The Private Defendants are one

physical therapy practice and three individual physical therapists who perform dry

needling. (Am. Compl. ¶¶ 8–11.)

{6} “Dry needling,” also known as “trigger point needling,” is the practice of

inserting needles into specific trigger points in the body to relieve muscle pain.

(Am. Compl. ¶¶ 19–20.) As defined by statute, the practice of acupuncture involves

the “insertion of acupuncture needles . . . based upon acupuncture diagnosis as a

primary mode of therapy.” N.C. Gen. Stat. § 90-451(3). Acupuncture is defined in

turn as “a form of health care developed from traditional and modern Chinese

medical concepts that employ acupuncture diagnosis and treatment . . .” N.C. Gen.

Stat. § 90-451(1). The Acupuncture Board takes the position that dry needling is

the practice of acupuncture because the needles used are no different from

acupuncture needles, and the “trigger points” into which needles are inserted

during dry needling are identical to the traditional “ashi points” utilized by

acupuncturists for over 2,000 years. (Am. Compl. ¶¶ 20–21.) The practice of

acupuncture is limited by our statutes to those who are licensed by the Acupuncture

Board, supervised student practitioners, licensed physicians, and licensed

chiropractors. N.C. Gen. Stat. § 90-452.

{7} The General Assembly has defined the scope of practice for physical

therapists broadly. Physical therapy is “the evaluation or treatment of any person

by the use of physical, chemical, or other properties of heat, light, water, electricity,

sound, massage, or therapeutic exercise, or other rehabilitative procedures, with or

without assistive devices, for the purposes of preventing, correcting, or alleviating a

physical or mental disability.” N.C. Gen. Stat. § 90-270.24(4). The practice of

physical therapy is not limited to a specific set of procedures, as “[e]valuation and

treatment of patients may involve physical measures, methods, or procedures as are

found commensurate with physical therapy education and training and generally or

specifically authorized by regulations of the Board.” Id. The Physical Therapy

Board believes that dry needling falls within this statutory definition.

{8} In 2002, the Physical Therapy Board, as reflected in its newsletter for

licensees, took the position that dry needling was a form of acupuncture and outside

the scope of practice of physical therapists. (Am. Compl. ¶ 35, Ex. C.) Eight years

later, the Physical Therapy Board revised its view and, in a September 2010

position statement, concluded that dry needling is within the scope of practice of

physical therapists.1 (PT Board’s Mot. Dismiss Ex. C ¶ 6).

{9} In response to this change in position, the Acupuncture Board requested a

formal Attorney General Opinion on April 15, 2011. (PT Board’s Mot. Dismiss Ex.

1 Although not relevant to the Court’s decision, the Physical Therapy Board has presented evidence

that a majority of states specifically allow physical therapists to practice dry needling. (PT Board’s

Br. Supp. Mot. Dismiss Ex. A. 406–08.)

D.) The question posed by the Acupuncture Board was whether a person licensed to

practice physical therapy but not acupuncture could perform dry needling. (PT

Board’s Mot. Dismiss Ex. D.)

{10} The Attorney General’s Advisory Letter followed in December 2011, and it

concluded that the Physical Therapy Board had the power to determine whether dry

needling is within the scope of practice of physical therapists. (PT Board’s Mot.

Dismiss Ex. B, hereinafter “Att’y Gen. Advisory Letter,” 3.) The Advisory Letter

took the position that dry needling is distinct from acupuncture and that the

statutory definition of physical therapy neither specifically allows nor prohibits the

puncturing of the body with needles. (Att’y Gen. Advisory Letter 2.) Finally, the

Advisory Letter counseled that, in order to uphold its statutory mandate to

safeguard the public health, the Physical Therapy Board would need to adopt

administrative rules and standards to ensure that dry needling was only practiced

by physical therapists with a requisite level of skill and competence. (Att’y Gen.

Advisory Letter 3.)

{11} Under the rulemaking procedures set forth in the Administrative

Procedure Act, the Physical Therapy Board in 2014 proposed a rule setting training

standards for dry needling. (Am. Compl. Ex. D.) The proposed rule would have

required at least fifty-four hours of additional training for physical therapists who

wished to perform dry needling. (Am. Compl. Ex. D.) Pursuant to N.C. Gen. Stat. §

150B-21.8, the Physical Therapy Board submitted the proposed rule to the Rules

Review Commission, which came on for hearing on January 15, 2015, at which the

Acupuncture Board appeared alongside others to object to the proposed rule. (Am.

Compl. ¶¶ 45–46.) The Rules Review Commission objected to the proposed rule,

citing insufficient statutory authority for the proposed rule, as required by N.C.

Gen. Stat. § 21.9(a). (Am. Compl. Ex. E.)

{12} After the Rules Review Commission objected to the proposed rule, the

Physical Therapy Board posted on its website a revised position statement about

dry needling on January 16, 2015. (Am. Compl. Ex. G.) The revised position

statement reflects the Physical Therapy Board’s belief that, under the Attorney

General’s Advisory Letter, dry needling still falls within the scope of physical

therapy. (Am. Compl. Ex. F.) The Physical Therapy Board “believes physical

therapists can continue to perform dry needling so long as they possess the requisite

education and training required by N.C.G.S. § 90-270.24(4), but there are no

regulations to set the specific requirements for engaging in dry needling.” (Am.

Compl. Ex. F.)

{13} The Acupuncture Board seeks a declaratory judgment that the

performance of dry needling by physical therapists constitutes the unlawful practice

of acupuncture. (Am. Compl. ¶ 62.) The Acupuncture Board additionally seeks a

permanent injunction requiring the Physical Therapy Board to withdraw the

January 16 revised position statement and other similar notices. (Am. Compl. ¶

68.)

{14} The sole claim against the Private Defendants is for a permanent

injunction pursuant to N.C. Gen. Stat. § 90-454(4), which empowers the

Acupuncture Board to sue to enjoin the unauthorized practice of acupuncture. (Am.

Compl. ¶¶ 69–73.) The Acupuncture Board alleges that the Private Defendants

have practiced acupuncture without a license by performing dry needling. (Am.

Compl. ¶¶ 70–71.) In the case of Cornerstone, the Acupuncture Board alleges that

it unlawfully provides acupuncture services through its physical therapists who

perform dry needling. (Am. Compl. ¶ 71.)

B. Procedural Background

{15} The Acupuncture Board initiated this action in September 2015 by filing a

complaint seeking a declaratory judgment and permanent injunction against the

Physical Therapy Board. The Physical Therapy Board filed a motion to dismiss,

which the parties fully briefed. Two days before a hearing on the motion to dismiss,

the Acupuncture Board filed as of right the Amended Complaint, which added

claims for a permanent injunction against the Private Defendants.

{16} Prior to the filing of the Amended Complaint, Dr. Henry and Dr.

Schulenklopper, two of the Private Defendants, were already engaged in litigation

against the Acupuncture Board. Dr. Henry and Dr. Schulenklopper, along with

others, filed a federal antitrust lawsuit against the Acupuncture Board on October

7, 2015, alleging that the Acupuncture Board has violated the Sherman Act by

conspiring to exclude physical therapists as competitors. (Private Defs.’ Mot.

Dismiss Ex. A.)

{17} The Physical Therapy Board and the Private Defendants filed separate

Motions to Dismiss the Amended Complaint on January 28, 2016. The Court held a

hearing on the Motions on March 16, 2016, at which all parties were represented by

counsel, and the Motions are now ripe for decision.2

II.

LEGAL STANDARD

{18} The Motions to Dismiss seek relief under North Carolina Rules of Civil

Procedure 12(b)(1), 12(b)(2), and 12(b)(6).

{19} A motion to dismiss for failure to exhaust administrative remedies is

appropriately brought as a Rule 12(b)(1) challenge to subject matter jurisdiction.

Shell Island Homeowners Ass’n v. Tomlinson, 134 N.C. App. 217, 220, 517 S.E.2d

406, 410 (1999). As the party invoking jurisdiction, the Acupuncture Board bears

the burden of establishing standing. Am. Woodland Indus. v. Tolson, 155 N.C. App.

264, 267, 574 S.E.2d 55, 57 (2002). In determining the existence of subject matter

jurisdiction, the Court may consider matters outside the pleadings. Emory v.

Jackson Chapel First Missionary Baptist Church, 165 N.C. App. 489, 491, 598

S.E.2d 667, 670 (2004).

2 Plaintiff also filed a Motion for Preliminary Injunction on March 11, 2016, which is scheduled for

hearing on May 5, 2016, as well as a Motion to Modify Discovery Stay on April 12, 2016 and a Motion

for Leave to File Supplemental Documents in support of the Motions for Preliminary Injunction and

to Modify Discovery Stay on April 20, 2016 (collectively, “Plaintiff’s Motions”). The Court’s ruling on

Defendants’ Motions to Dismiss dismissing Plaintiff’s claims renders each of Plaintiff’s Motions

moot, and, thus, they are denied. See, e.g., Jacobson v. AMTRAK, No. 1:11CV969, 2013 U.S. Dist.

LEXIS 8190, at *5 (M.D.N.C. Jan. 22, 2013) (noting that “a dismissal will render moot all other

pending motions”); US Airline Pilots Ass'n v. AWAPPA, LLC, No. 3:08cv246, 2008 U.S. Dist. LEXIS

106440, at *50 (W.D.N.C. July 11, 2008) (holding that “Plaintiff's requests for a temporary

restraining order and a preliminary injunction are rendered moot by the dismissal of the Plaintiff's

state-law claims, and for that reason are denied.”).

{20} A sovereign immunity defense may be raised by a Rule 12(b)(2) motion to

dismiss for lack of personal jurisdiction. Parker v. Town of Erwin, 776 S.E.2d 710,

720 (N.C. Ct. App. Sept. 15, 2015).3 The standard of review in deciding a 12(b)(2)

motion depends upon the procedural posture of the matter, and the parties are

permitted to submit evidence and affidavits in support of their jurisdictional

arguments. Id. Where, as here, the defendant submits affidavits or other

supporting evidence with its 12(b)(2) motion, the allegations in the complaint can no

longer be taken as true and the plaintiff cannot rest on the complaint’s allegations.

Id. at 721 (quoting Banc of Am. Sec. LLC v. Evergreen Int’l Aviation, Inc., 169 N.C.

App. 690, 693, 611 S.E.2d 179, 182 (2005)).

{21} A Rule 12(b)(6) motion to dismiss for failure to state a claim “does not

present the merits, but only whether the merits may be reached.” Concrete Serv.

Corp. v. Investors Grp., Inc., 79 N.C. App. 678, 681, 340 S.E.2d 755, 758 (1986). The

standard of review on a 12(b)(6) motion is whether the allegations of the complaint,

taken as true, are sufficient to state claim upon which relief may be granted. Laster

v. Francis, 199 N.C. App. 572, 577, 681 S.E.2d 858, 862 (2009).

III.

ANALYSIS

A. Sovereign Immunity

{22} “[I]t is an established principle of jurisprudence that a state may not be

sued unless by statute it has consented to be sued or has otherwise waived its

immunity from suit.” Ray v. N.C. DOT, 366 N.C. 1, 4, 727 S.E.2d 675, 678 (2012)

(internal punctuation omitted) (quoting Smith v. Hefner, 235 N.C. 1, 6, 68 S.E.2d

3 The precise nature of a sovereign immunity defense is somewhat unsettled. Court of Appeals case

law has consistently held that a sovereign immunity defense presents an issue of personal, not

subject matter, jurisdiction. Can Am South, LLC v. State, 234 N.C. App. 119, 123–24, 759 S.E.2d

304, 308 (2014). At the same time, however, the Supreme Court has explicitly stated that it has not

yet determined “whether sovereign immunity is a question of subject matter jurisdiction.” Teachy v.

Coble Dairies, Inc., 306 N.C. 324, 327–28, 293 S.E.2d 182, 184 (1982). The Supreme Court has not

commented further on the distinction, and Court of Appeals cases still cite Teachy favorably. Can

Am South, 234 N.C. App. at 123–24, 759 S.E.2d at 308. The distinction can be important because a

denial of a 12(b)(2) motion regarding personal jurisdiction is immediately appealable while the

denial of a 12(b)(1) motion regarding subject matter jurisdiction is not immediately appealable. Id.

This lingering question does not impact the current Motions, however, because the Physical Therapy

Board has asserted its sovereign immunity defense only under Rule 12(b)(2).

783, 787 (1952)). This protection extends to state agencies, unless it has been

waived. Id. Waiver of sovereign immunity arises by statute, and such statutes are

strictly construed. State v. Taylor, 322 N.C. 433, 436–37, 368 S.E.2d 601, 603

(1988) (citation omitted). In order to overcome a sovereign immunity defense, a

complaint must allege facts “to provide a reasonable forecast of waiver” of sovereign

immunity by the State. Fabrikant v. Currituck Cnty., 174 N.C. App. 30, 38, 621

S.E.2d 19, 25 (2005).

{23} The Amended Complaint does not allege that the Physical Therapy Board

has waived sovereign immunity, and the Acupuncture Board admits that sovereign

immunity generally applies to both the Physical Therapy Board and the

Acupuncture Board (Pl.’s Br. Opp. PT Board’s Mot. Dismiss 4.) Rather, the

Acupuncture Board argues that a sovereign immunity defense is categorically

unavailable in government on government litigation such as that here. (Pl.’s Br.

Opp. PT Board’s Mot. Dismiss 5.)

{24} In support of this view, the Acupuncture Board directs the Court’s

attention to several cases of government on government litigation where the Court

either considered the merits of the case or dismissed without raising the issue of

sovereign immunity. See, e.g., N.C. Dep’t of Corr. v. N.C. Med. Bd., 363 N.C. 189,

675 S.E.2d 641 (2009) (affirming declaratory judgment action between two state

agencies); N.C. Bd. Of Exam’rs for Speech & Language Pathologists & Audiologists

v. N.C. State Bd. Of Educ., 122 N.C. App. 15, 16, 468 S.E.2d 826, 827 (1996)

(reversing summary judgment and remanding for further proceedings in

declaratory judgment action between state agencies); State ex rel. Edmisten v.

Tucker, 312 N.C. 326, 329–30, 323 S.E.2d 294, 298 (1984) (affirming dismissal of

Attorney General’s declaratory judgment action against district court judges for

lack of justiciability).

{25} The Court initially notes that the mere existence of such cases is not

dispositive, because a defense that the court lacks personal jurisdiction is waived if

not timely raised. N.C. R. Civ. P. 12(h)(1). None of the cases identified by the

Acupuncture Board mention sovereign immunity, and the Court therefore hesitates

to infer from their silence that sovereign immunity is not an available defense in

these types of suits. See, e.g., Pearson v. C.P. Buckner Steel Erection, 139 N.C.

App. 394, 399, 533 S.E.2d 532, 535 (2000) (declining to assume the Supreme Court

had decided an issue it had not specifically addressed); see also Cooper Indus. V.

Aviall Servs., 543 U.S. 157, 170 (2004) (“Questions which merely lurk in the record,

neither brought to the attention of the court nor ruled upon, are not to be considered

as having been so decided as to constitute precedents.”) (quotations and citations

omitted).

{26} The Court considers it more significant that our Supreme Court has

entertained the question of sovereign immunity when appropriately raised in

government on government litigation. N.C. Ins. Guar. Ass’n v. Bd. of Trs. of

Guilford Tech. Cmty. Coll., 364 N.C. 102, 103–04, 691 S.E.2d 694, 695–96 (2010). In

that case, the plaintiff, a legal entity created and governed by statute, brought suit

against the defendant seeking reimbursement for certain payments on worker’s

compensation claims. Id. Defendant’s sovereign immunity defense was the sole

issue on appeal to the Supreme Court, and the Court ultimately found a statutory

waiver of sovereign immunity on that claim. Id. at 112, 691 S.E.2d 700. The

finding of a statutory waiver necessarily rests on an unarticulated assumption that

sovereign immunity was otherwise available as a defense, a sentiment born out

even in the dissenting opinion. Id. at 114, 691 S.E.2d 701 (Edmunds, J., dissenting)

(“The majority correctly notes that this Court historically has been reluctant to find

exceptions to the long-standing doctrine of sovereign immunity when the General

Assembly has not explicitly set out a waiver.”).

{27} The availability of a sovereign immunity defense in government on

government litigation has been expressly considered by the federal court widely

recognized as an authority on matters of administrative law. See Dep’t of the Army

v. Fed. Labor Relations Auth., 56 F.3d 273 (D.C. Cir. 1995). The petitioner in that

case explicitly argued that sovereign immunity did not apply because the

government was on both sides of the case and the doctrine of sovereign immunity

was designed to protect the government only from litigation initiated by an outside

source. Id. at 275–76. The D.C. Circuit categorized the petitioner’s theory as “an

unduly circumscribed notion of the doctrine of sovereign immunity,” which “stands

as an obstacle to virtually all direct assaults against the public fisc, save only those

incursions from time to time authorized by Congress.” Id. (quoting United States v.

Horn, 29 F.3d 754, 761 (1st Cir. 1994) and citing Gray v. Bell, 712 F.2d 490, 511

(D.C. Cir. 1983), in which the court observed that sovereign immunity rests on “the

general rational that courts should not ‘interfere’ with government operations and

policymaking”)).4 See also, e.g., Ark. State Highway Comm’n v. Ark. River Co., 271

F.3d 753, 762 (8th Cir. 2001) (citing Army and holding state agency’s claim against

federal government barred by sovereign immunity); 14 Charles A. Wright et al.,

Federal Practice and Procedure § 3654, at 129 n.15 (4th ed. 2015) (citing Army and

stating “sovereign immunity bars suits against the United States that are

commenced by government entities.”).

{28} The Court is persuaded that the D.C. Circuit’s approach to government on

government litigation,5 particularly when considered alongside North Carolina

Insurance Guaranty Ass’n, reflects the North Carolina Supreme Court’s view of

sovereign immunity as an “absolute and unqualified” doctrine unless and until the

State expressly consents to being sued. Guthrie v. N.C. State Ports Auth., 307 N.C.

522, 534, 299 S.E.2d 618, 625 (1983) (“[T]he sovereign will not be subject to any

4 The D.C. Circuit persuasively explained in Gray:

The modern policy basis justifying sovereign immunity from suit has three principal

themes. First, and most important, under traditional principles of separation of

powers, courts should refrain from reviewing or judging the propriety of the

policymaking acts of coordinate branches. Second, consistent with the related

doctrine of official immunity, courts should not subject the sovereign to liability

where doing so would inhibit vigorous decision-making by government policymakers.

Third, in the interest of preserving public revenues and property, courts should be

wary of creating huge and unpredictable governmental liabilities by exposing the

sovereign to damage claims for broad policy decisions that necessarily impact large

numbers of people.

712 F.2d at 511.

5 The North Carolina Supreme Court has previously relied upon federal decisions in deciding issues

of North Carolina sovereign immunity law. See, e.g., Craig v. New Hanover Cnty. Bd. of Educ., 363

N.C. 334, 337, 678 S.E.2d 351, 354 (2009) (quoting with approval Mitchell v. Forsyth, 472 U.S. 511,

525 (1985)).

form of judicial action without its express consent.”). The Court therefore rejects

the Acupuncture Board’s argument that sovereign immunity can never apply in

government on government litigation.6 Because the Acupuncture Board did not

otherwise challenge the Physical Therapy Board’s Motion to Dismiss for lack of

personal jurisdiction, the Court concludes that it lacks personal jurisdiction over the

Physical Therapy Board and grants the Physical Therapy Board’s Motion to Dismiss

under Rule 12(b)(2).

B. Failure to Exhaust Administrative Remedies

{29} The General Assembly has waived sovereign immunity through the North

Carolina Administrative Procedure Act, N.C. Gen. Stat. § 150B-1 et seq., several

provisions of which entitle a plaintiff to judicial review against a state agency.

“Where the legislature has provided by statute an effective administrative remedy,

that remedy is exclusive and its relief must be exhausted before recourse may be

had to the courts.” Shell Island, 134 N.C. App. at 220–21, 517 S.E.2d at 410. The

Acupuncture Board has alleged that “no adequate administrative remedies exist . . .

and to the extent that any such remedies may have existed, they have now been

exhausted.” (Am. Compl. ¶ 60.) As discussed above, failure to exhaust

administrative remedies is a question of standing, and conclusory allegations are

insufficient to show that the plaintiff has standing. See Universal Cab Co. v. City of

Charlotte, 2015 NCBC LEXIS 23, at *20–21 (N.C. Super. Ct. Mar. 5, 2015)

(collecting cases).

{30} The requirement that a plaintiff exhaust its administrative remedies is not

insignificant, as it respects the separation of powers, better preserves the record for

judicial review, and makes complex litigation more manageable:

6 The Acupuncture Board also relies on Charlotte-Mecklenburg Hosp. Auth. v. N.C. Indus. Comm’n,

336 N.C. 200, 443 S.E.2d 716 (1994), as establishing a waiver of sovereign immunity where state

actors have, as Plaintiff argues here, “invade[d] or threaten[ed] to invade the personal or property

rights of a citizen in disregard of the law.” 336 N.C. at 208, 443 S.E.2d at 721 (emphasis in original).

Central to the Supreme Court’s decision, however, was the lack of administrative remedies available

to the plaintiff under the Administrative Procedure Act in the unusual circumstances of that case.

See id. at 208–09, 443 S.E.2d at 721–22. Because, for reasons explained in the next section, the

Court concludes that the Acupuncture Board had administrative remedies available to it to challenge

the Physical Therapy Board’s action, the Court does not find Charlotte-Mecklenburg Hosp. Auth.

controlling or persuasive in assessing Defendants’ Motions.

[Where an adequate administrative remedy exists], the legislature has

expressed an intention to give the administrative entity most

concerned with a particular matter the first chance to discover and

rectify error. Only after the appropriate agency has developed its own

record and factual background upon which its decision must rest

should the courts be available to review the sufficiency of its process.

An earlier intercession may be both wasteful and unwarranted. To

permit the interruption and cessation of proceedings before a

commission by untimely and premature intervention by the courts

would completely destroy the efficiency, effectiveness, and purpose of

the administrative agencies.

Presnell v. Pell, 298 N.C. 715, 722, 260 S.E.2d 611, 615 (1979). The Physical

Therapy Board argues that the Acupuncture Board has not exhausted its remedies

under the Administrative Procedure Act because it has not sought from the Physical

Therapy Board a declaratory ruling pursuant to section 150B-4 or filed a

rulemaking petition pursuant to section 150B-20. (PT Board’s Br. Supp. Mot.

Dismiss 12.)

{31} The Administrative Procedure Act allows a party to seek a declaratory

ruling from a state agency:

On request of a person aggrieved, an agency shall issue a declaratory

ruling as to the validity of a rule or as to the applicability to a given

state of facts of a statute administered by the agency or of a rule or

order of the agency. Upon request, an agency shall also issue a

declaratory ruling to resolve a conflict or inconsistency within the

agency regarding an interpretation of the law or a rule adopted by the

agency.

N.C. Gen. Stat. § 150B-4(a). A declaratory ruling is binding on the agency and the

requester, and the agency’s ruling or its decision not to issue a ruling is

immediately subject to judicial review. N.C. Gen. Stat. § 150B-4(a), (a1). When a

plaintiff, alleging that an agency’s action exceeds its authority, sues without first

seeking a section 150B-4 declaratory ruling, the Court may dismiss for failure to

exhaust administrative remedies. Affordable Care v. N.C. State Bd. of Dental

Exam’rs, 153 N.C. App. 527, 534, 571 S.E.2d 52, 58 (2002) (holding that plaintiffs

had not exhausted administrative remedies where they failed to seek relief from the

state agency under sections 150B-4 and 150B-20 and only alleged that they objected

to a proposed rule before the Rules Review Commission); Porter v. N.C. Dep’t of

Ins., 40 N.C. 376, 379–80, 253 S.E.2d 44, 46 (1979) (dismissing declaratory

judgment action where plaintiff failed to first seek declaratory ruling from the state

agency under the Administrative Procedure Act).

{32} The Acupuncture Board argues that it could not have sought a declaratory

ruling under section 150B-4 because it is not a “person aggrieved,” which the

Administrative Procedure Act defines as “any person or group of persons of common

interest directly or indirectly affected substantially in his or its person, property, or

employment by an administrative decision.” N.C. Gen. Stat. § 150B-2(6). The

Acupuncture Board specifically contends that it has not been aggrieved by an

“administrative decision” under section 150B-2(6) because the only final agency

action in this case has been the Rule Review Commission’s objection to the proposed

rule, with which the Acupuncture Board agrees. (Pl.’s Br. Opp. PT Board’s Mot.

Dismiss 8.)

{33} The Acupuncture Board, however, has not identified any authority holding

that a declaratory ruling under section 150B-4 may only be sought for final agency

action.7 In fact, while the first sentence of section 150B-4 requires a “person

aggrieved,” and speaks of the “validity of a rule,” the second sentence is written

more broadly: “Upon request, an agency shall also issue a declaratory ruling to

resolve a conflict or inconsistency within the agency regarding an interpretation of

the law or a rule adopted by the agency.” N.C. Gen. Stat. § 150B-4(a). On its plain

language, that sentence clearly applies to the relief sought by the Acupuncture

Board here, whose Amended Complaint asks the Court to resolve a conflict or

inconsistency regarding an interpretation of the law surrounding dry needling and

the scope of physical therapy practice. Furthermore, status as a “person aggrieved”

7 To the contrary, under other administrative statutes, our courts have required plaintiffs to exhaust

their administrative remedies when the challenged actions did not involve final agency action. See,

e.g., LegalZoom.com, Inc. v. N.C. State Bar, 2014 NCBC LEXIS 9, at *18–24 (N.C. Super Ct. Mar. 24,

2014) (requiring exhaustion of administrative remedies when plaintiff challenged state actor’s

inaction); Abrons Family Practice & Urgent Care, PA v. N.C. Dep't of HHS, 2015 NCBC LEXIS 63,

at *26–27 (N.C. Super. Ct. June 12, 2015) (requiring exhaustion of administrative remedies when

plaintiff challenged state agency’s Medicaid reimbursement process).

is essentially a question of standing. See N.C. Forestry Ass’n v. Dep’t of Env’t &

Natural Res., 357 N.C. 640, 643, 588 S.E.2d 880, 882 (2003). To the extent that the

Acupuncture Board asserts that it has standing to seek the requested relief in this

state court lawsuit, it would be illogical to conclude that the Acupuncture Board is

not also a “person aggrieved.”

{34} The Court likewise considers meritless the Acupuncture Board’s argument

that it could not have sought a section 150B-4 declaratory ruling because the

Physical Therapy Board has acted through informal rulemaking “and thus no

statute administered by the PT Board is involved.” (Pl.’s Br. Opp. PT Board’s Mot.

Dismiss 9.) That argument is inconsistent with the allegations in the Amended

Complaint. The Acupuncture Board “seeks a declaration from the Court that . . .

physical therapists engaged in ‘dry needling’ constitutes the unlawful practice of

acupuncture’ pursuant to the [Acupuncture Practice Act].” (Am. Compl. ¶ 62.)

Issuing a declaratory judgment on that question would necessarily require the

Court to construe the Physical Therapy Practice Act. Because the Acupuncture

Board has not sought a declaratory ruling under section 150B-4, the Physical

Therapy Board has not had the opportunity to develop its own record and reasoning

on which its decision rests prior to judicial review.

{35} The Physical Therapy Board additionally argues that the Acupuncture

Board has not exhausted its administrative remedies because it has failed to file a

petition for rulemaking. “A person may petition an agency to adopt a rule by

submitting to the agency a written rule-making petition requesting the adoption.”

N.C. Gen. Stat. § 150B-20(a). If an agency denies a rule-making petition, it must

send the petitioner a written statement explaining its denial, and the petitioner is

then entitled to judicial review. N.C. Gen. Stat. § 150B-20(c), (d).

{36} The Acupuncture Board believes this remedy is inapplicable because the

Rules Review Commission already objected to the Physical Therapy Board’s

proposed rule on dry needling. (Pl.’s Br. Opp. PT Board’s Mot. Dismiss 9.)

However, our Court of Appeals has previously held that a prior hearing and decision

by the Rules Review Commission is not sufficient to show exhaustion of

administrative remedies, even if the plaintiff anticipates no different result.

Affordable Care, 153 N.C. App. at 534, 571 S.E.2d at 58.

{37} Therefore, because the Acupuncture Board has brought this suit without

seeking relief from the Physical Therapy Board under section 150B-4 and 150B-20,

which are adequate remedies available to it, the Acupuncture Board has not

exhausted its administrative remedies under the Administrative Procedure Act.

The Court therefore concludes that it lacks subject matter jurisdiction over this

action and grants the Physical Therapy Board’s Motion to Dismiss under Rule

12(b)(1).

C. Anti-Collateral Attack Rule

{38} The Physical Therapy Board and the Private Defendants both argue that

all claims should be dismissed against the Private Defendants as an improper

collateral attack against the exhaustion of administrative remedies doctrine. See

Vanwijk v. Prof’l Nursing Servs., 213 N.C. App. 407, 409–410, 713 S.E.2d 766, 768

(2011). In Vanwijk, the issue on appeal was whether the trial court properly

dismissed plaintiff’s complaint as to private defendants on the grounds of failure to

exhaust administrative remedies. Id. Following the plaintiff-police officer’s

termination after failing a drug test, rather than challenging the test results before

the Office of Administrative Hearings, plaintiff filed suit against the drug-test

provider, alleging that it had negligently administered the test. Id. at 407–09, 713

S.E.2d at 767–68. The Court of Appeals affirmed the dismissal, stating that

“[p]laintiff would like for this Court to believe that the administrative exhaustion

doctrine only applies to claims brought against administrative agencies and not to

those brought against private parties that happen to stem from decisions of an

administrative agency,” id. at 410, 713 S.E.2d at 768, an outcome the Court

specifically rejected. Similarly, in Prentiss v. Allstate Insurance Company, the

Court of Appeals dismissed the plaintiff’s complaint against his private insurer on

the grounds that the substance of the complaint was an attack on the rates system

established by the insurance commissioner, and therefore that “this case involve[ed]

an agency decision which is subject to the APA.” 144 N.C. App. 404, 408, 548 S.E.2d

557, 560 (2001).

{39} This prohibition on sidestepping the exhaustion of administrative remedies

doctrine does not change when a plaintiff brings in a state agency as a defendant.

In a case nearly identical to Prentiss, the plaintiff sought to challenge the insurance

rates system by naming private insurance companies and the Department of

Insurance as co-defendants. Burrill v. Long, No. COA06-955, 2007 N.C. App.

LEXIS 1709 (N.C. Ct. App. Aug. 7, 2007) (unpublished). The Court held that the

trial court lacked subject matter jurisdiction as to all claims because the plaintiff

had not exhausted his remedies under the APA. Id. at *5–6.

{40} The rationale for prohibiting a plaintiff from collaterally attacking an

agency decision by bringing an action against private defendants is that “adding

another layer of collateral review for agency decisions threatens to put at naught

the administrative process established by [the legislature].” Palumbo v. Waste

Technologies Indus., 989 F.2d 156, 161 (4th Cir. 1993) (applying similar federal

law). Indeed, allowing such claims to proceed would deprive the Court of the

evidentiary record that would otherwise be accumulated through agency

proceedings. Id.

{41} Here, the Acupuncture Board added the Private Defendants shortly before

a hearing on the first motions to dismiss. The relief sought against the Private

Defendants would achieve the same results sought by the Acupuncture Board

against the Physical Therapy Board. While the Acupuncture Board has the power

to sue to enjoin the unauthorized practice of acupuncture under N.C. Gen. Stat. §

90-454(4), considering Plaintiff’s claims would require the Court to determine

whether dry needling falls within the statutory definition of acupuncture and

therefore within the Acupuncture Board’s exclusive sphere of regulation. Because

the claim brought against the Private Defendants is in essence a challenge of

agency action—the Physical Therapy Board’s issuance of the revised position

statement after its proposed rule was rejected—the Acupuncture Board is still

required to exhaust its administrative remedies before seeking judicial review.

Therefore, for the same reasons as stated above, the Court concludes that it lacks

subject matter jurisdiction over Plaintiff’s claims against the Private Defendants.

IV.

CONCLUSION

{42} WHEREFORE, for the foregoing reasons, the Court hereby GRANTS the

Physical Therapy Board’s Motion to Dismiss on the basis of Rule 12(b)(1) and Rule

12(b)(2), GRANTS the Private Defendants’ Motion to Dismiss on the basis of Rule

12(b)(1), and therefore DISMISSES the claims asserted in Plaintiff’s Amended

Complaint without prejudice.8

{43} Having concluded that the Court lacks both personal and subject matter

jurisdiction over this action, the Court may not address Defendants’ arguments

under Rule 12(b)(6) that the requested relief would violate the antitrust provision of

the North Carolina Constitution, N.C. Const. art. I, § 34. See, e.g., In re T.R.P., 360

N.C. 588, 590, 636 S.E.2d 787, 790 (2006) (“Subject matter jurisdiction is the

indispensable foundation upon which valid judicial decisions rest, and in its absence

a court has no power to act[.]”); In re Z.T.B., 170 N.C. App. 564, 572, 613 S.E.2d 298,

302 (2005) (“[L]ack of subject matter jurisdiction divests the trial court of any

authority to adjudicate . . . .”).

{44} In light of the Court’s ruling on Defendants’ Motions to Dismiss and the

resulting denial of Plaintiff’s Motions as moot as explained in footnote 2 supra, the

Court hereby cancels the hearing on Plaintiff’s Motion for Preliminary Injunction

and Rule 17 Case Management Conference currently scheduled for May 5, 2016.

8 A dismissal for lack of jurisdiction is generally a dismissal without prejudice.

“Unless the court in

its order for dismissal otherwise specifies, a dismissal under this section and any dismissal not

provided for in this rule, other than a dismissal for lack of jurisdiction . . . operates as an

adjudication upon the merits.” N.C. R. Civ. P. 41(b) (emphasis added). Because dismissal for lack of

jurisdiction does not allow a trial court to engage with the merits, the plaintiff is not barred from

bringing the claim where jurisdiction exists. Hudson Int’l, Inc. v. Hudson, 145 N.C. App. 631, 638,

550 S.E.2d 571, 575 (2001) (citing Falk Integrated Tech., Inc. v. Stack, 132 N.C. App. 807, 810–11,

513 S.E.2d 572, 574 (1999). Nevertheless, the trial court retains broad discretion in determining

whether to order dismissal with or without prejudice. Johnson v. Bollinger, 86 N.C. App. 1, 8–9, 356

S.E.2d 378, 383 (1987) (citing Whedon v. Whedon, 313 N.C. 200, 213, 328 S.E.2d 437, 445 (1985)).

SO ORDERED, this the 26th day of April, 2016.

/s/ Louis A. Bledsoe, III

Louis A. Bledsoe, III

Special Superior Court Judge

for Complex Business Cases