Petition for Writ of Certiorari — Clark v. Fancher

Supreme Court brief1995

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Text

Court,

FILED

J 88-543 0c1 2, oF

QEEICE QF THE GLERK

. No.

Supreme Cort ofthe United States

October Term, 1995

E.L. CLARK,

Petitioner,

vs.

DERRELL O. FANCHER; ALABAMA STATE HEALTH

PLANNING AGENCY; ALBERTVILLE NURSING HOME,

INC. and BARFIELD HEALTH CARE, INC.,

Respondents.

Petition for a Writ of Certiorari to the

Supreme Court of Alabama

PETITION FOR WRIT OF CERTIORARI

JUSTICE D. SMYTH, III

Counsel of Record

ROBISON & BELSER, P.A.

Attorneys for Petitioner

210 Commerce Street

P.O. Drawer 1470

Montgomery, Alabama 36102

(334) 834-7000

753%

we (800) 3 APPEAL. « (800) 5 APPEAL « (800) BRIEF 21

BZ Arices, inc.

QUESTIONS PRESENTED

I. Whether there exists a viable federal question for review

by the Supreme Court of the United States?

II. Whether a state administrative agency can lawfully

change its historical interpretation of applicable statutes and

regulations so as to dispossess an affected party of his property

without compensation and in a manner which is wholly different

from similarly situated persons or entites?

LisT OF PARTIES

Petitioner/Appellant: |

E: L. Clark, an Individual. (No corporations,

parent corporations or subsidiaries involved)

Respondents/Appellees:

Derrell O. Fancher, an Individual, who has been

replaced as Executive Director of the Alabama

State Health Planning Agency by Elbert Peters, an

Individual.

Alabama State Health Planning Agency, an

Agency or Instrumentality of the State of

Alabama.

Albertville Nursing Home, Inc., an Alabama

corporation. (No parent corporation or

subsidiaries involved)

Barfield Health Care, Inc., an Alabama

corporation. (No parent corporation or

subsidiaries involved)

iii

TABLE OF CONTENTS

EE Ee, a ae OP

SE a

Constitutional Provisions, Statutes and Regulations

EME S TT ee oh ub o594 0.066666 c60cceces

Reasons for Granting the Writ ......................

I. This Court has jurisdiction over this case and may

appropriately decide the question presented for

GSE ee

Il. The action of the State Health Planning Agency is

an unconstitutional “taking” of the petitioner’s

property and a violation of his procedural due

i eet eaoukedses oes eéeeeeses

EES ES AA ns oe

Contents

Page

TABLé OF CITATIONS

Cases Cited:

A.A. Profiles, Inc. v. City of Fort Lauderdale, 850 F.2d 1483

(11th Cir. 1988), cert. denied, 490 U.S. 1020(1989) .. 24,25

Collins v. Harker Heights, TX, 503 U.S. _, 117 L. Ed. 2d

Bek, SAA Gt UEMUED 2 thee chcnssncenasedbanae 26

E.L. Clark v. Derrell O. Fancher, et al., 1994 Ala. Civ. App.

LEXIS 295, __ So. 2d __ (Ala. Civ. App. 1994), cert.

RE, SO ke. CED nd fh heeds 6 beces 1,5

First English Evangelical Lutheran Church v. County of

Los Angeles, 482 U.S. 304, 96 L. Ed. 2d 250, 107 S. Ct.

Fe Ee re Pp rrr re rE Pre or Te 22

Frozen Foods Express, Inc. v. United States, 535 F.2d 877

COU GT 0 6.0 60.bd000sb aba tapavedeienaseres 26

Illinois v. Gates, 462 U.S. 213, 76 L. Ed. 2d 527, 103 S. Ct.

PORFESTOED Sc0 aah consecpesseccdwasenesdevecsr 19

Kaiser Aetna v. United States, 444 U.S. 164, 62 L. Ed. 2d

SES, SEER PEGI O ae Ke cccincbusssskeeeennnes 22

Lucas v. South Carolina Coastal Council, 505 U.S.__, 120

L. Ed. 2d 798, 112 S. Ct. 2886(1992) .............. 23

Mobile County Gas District v. Mobile Gas Service

Corporation, 227 So. 2d 565, 284 Ala. 664 (1969) .... 26

Contents

Page

Penn Central Transportation Company v. City of New York,

438 U.S. 104, 57 L. Ed. 2d 631,98 S. Ct. 2646(1978) . 22

Perry v. Sinderman, 408 U.S. 593, 33 L. Ed. 2d 570, 92 S.

CE hd nkanddcka dds vecudvenessavues 24

Pritchett v. Nathan Rodgers Construction and Realty

Company, 379 So. 2d 545 (Ala. 1980) .............. 26

Resolution Trust Corporation v. Town of Highland Beach,

Be te ke a ree 23,24

Ruckelshaus v. Monsanto Co., 467 U.S. 986, 81 L. Ed. 2d

Shay FU Gs MCLE hc dnccveecvabeceoesces 22

Wheeler v. City of Pleasant Grove, 664 F.2d 99 (Sth Cir.

Unit B, Dec. 1981), cert. denied, 456 U.S. 973 (1982)

Sebdeabicdivesvvesees0abeec¥a cd Wise ceaeetes 25

Statutes Cited:

Administrative Procedure Act:

RS 5.05 6 bao dace d NSS eee k ante ea0% 8

DEE bid bbs ban beads beaeanede eb ateOS 3

Alabama Code:

aE PGS acaschestsdexcsctesnterdsee: 2

Contents

Page

§ 22-21-260(5S), (6), (10), (11), (13) «0... 0c cece eee 3

§ 22-21 261 she ecccovccnsceteseceebesaseedeses 3,4

GaP GOGEe bh vvccivivrstvnbinsuueseueebenuen 3

SSPOONGED ced icc daeccdcbdedeocerdeneens +

eo TTT Tr roe 3,4

SPONSE Kiveccscvecaiveleyceetucecedecwwas 3,20

GOP b's cccccduadscdkndennaverisieusees 3

FPO ccc cvavescvauccesetsiieubieeue 3

FIP GP GTO oso ccevacduseacancucsskes cial 3

SOA TUNPTED shinnecaccusdanseécapabeunwe 2

United States Constitution Cited:

Fourteenth Amendment ..........ccccccccccccccccs 2, 22, 26

Rules Cited:

Supreme Court Rule 10.1(¢) ......cccccccccccccccces 2

vii

Contents

Other Authorities Cited:

SHPA Procedures Manual (Rev. 1979), § 410-1-3-.01 (6)

Ps Sid oe Otte alndic chin ch uUniwbba ba vee cade

EP dwacanucddenGnese cs ch duacketalddwsveewboxss

SHPA Rules & Regulations (Rev. 1991) § 410-1-8-.22 ...

SHPA Rules & Regulations (Rev. 1991) § 410-1-8-.26 ...

APPENDIX

Appendix A— Judgment of the Supreme Cout of Alabama

Pe EE kbp Sewdendccbensdackidoenwe

Appendix B — Decision of the Supreme Court of Alabama

Filed November 30, 1994 2... ..cccccccccccccccce

Appendix C — Decision of the Court of Civil Appeals,

State of Alabama, Montgomery Filed July 29, 1994 ...

Appendix D — Opinion of the Alabama Court of Civil

REPT TE Rn EOE cccmccecccocccccccces

Appendix E— Final Decree Filed June 18,1993 .......

Appendix F — Order of the State Health Planning and

Development Agency of the State of Alabama Dated

POPU EG MOTO nc ce che esadontecévcsibedcaces

Page

l4a

viii

Contents

Page

Appendix G — Order of the State Health Planning

AgencyDated August 26,1991 ..........cceceeeee 19a

Appendix H — Constitution of the United States,

PUREE. Sob ccandcdetvssrnrdeereceseees 84a

Appendix I— Code of Alabama, § 22-21-260 .......... 85a

Appendix J — Code of Alabama, § 22-21-261 ......... 89a

Appendix K — Code of Alabama, § 22-21-263 ......... 90a

Appendix L— Code of Alabama, § 22-21-265 ......... 92a

Appendix M— Code of Alabama, § 22-21-266 ........ 93a

Appendix N — Code of Alabama, § 22-21-268 ......... 94a

Appendix O — Code of Alabama§ 22-21-270 .......... 95a

Appendix P— Code of Alabama § 22-21-276 .......... 96a

Appendix Q — Code of Alabama, § 41-22-20 .......... 97a

Appendix R — State Health Planning Agency Procedures

Manual (Rev. 1979), §410-1-3-.01 ................ 99a

Appendix S — State Health Planning Agency Procedures

Manual (Rev. 1979), §410-1-7.01 .............4.. 100a

Appendix T — State Health Planning Agency Rulesand .

Regulations (Rev. 1991), §410-1-8-.22 ............ 10la

Appendix U — State Health Planning Agency Rules and

Regulations (Rev. 1991), §410-1-8-.26 ............ 103a

No.

In The

Supreme Court of the United States

. an

October Term, 1995

E. L. CLARK,

Petitioner,

vs.

DERRELL O. FANCHER; ALABAMA STATE HEALTH

PLANNING AGENCY; ALBERTVILLE NURSING HOME,

INC., and BARFIELD HEALTH CARE, INC.,

Respondents.

Petition for Writ of Certiorari to the

Supreme Court of Alabama

PETITION FOR WRIT OF CERTIORARI

OPINIONS BELOW

The Supreme Court of Alabama denied the petition for writ

of certiorari to the Alabama Court of Civil Appeals filed by

petitioner E. L. Clark (“Clark”) on May 19, 1995. (See Appendix

A hereto). The time for the filing of this Petition was extended by

Justice Kennedy, on August 4, 1995, to and including October 2,

1995. The Alabama Court of Civil Appeals decision, from which

this appeal is taken, is E. L. Clark v. Derrell O. Fancher, et al.,

1994 Ala. Civ. App. LEXTS 295, ___ So. 2d ___ (Ala. Civ. App.

1994), cert. denied, _So.2d__ (1995).

STATEMENT OF JURISDICTION

The decision being reviewed by this Court is the judgment of

the Alabama Court of Civil Appeals dated June 17, 1994.

(Appendix “D” hereto). The Alabama Court of Civil Appeals

denied rehearing on July 29, 1994. (Appendix “C” hereto). The

Supreme Court of Alabama initially granted Clark’s petition for

writ of certiorari on November 30, 1994 (Appendix “B” hereto)

but, subsequently, quashed the writ and denied the petition on

May 19, 1995 (Appendix “A” hereto).

This Court has jurisdiction over the present case under and

by virtue of 28 U.S.C. § 1257 (a) of the United States Code.

Moreover, Supreme Court Rule 10.1 (c) states that jurisdiction is

properly conferred “when a state court ... has decided an

important question of federal law in a way which conflicts with

the applicable decisions of the Court.”

CONSTITUTIONAL PROVISIONS, STATUTES AND

REGULATIONS INVOLVED

Amendment XIV of the Constitution of the United States;

the State of Alabama Code of 1975, Sections 22-21-260 et seq. of

the Code of Alabama (1975) and the regulations governing the

award of applications for Certificates of Need, referred to as the

State Health Planning Agency (“SHPA”) “Procedures Manual

(Rev. 1979)” and the SHPA “Rules and Regulations (Rev. 1991)”

are relevant to this matter. Certain of these provisions, statutes or

regulations are set out in the Appendices hereto, as shown below,

viz:

Amendment XIV, § 1, Constitution of the United States —

Appendix H

Code of Alabama (1975), § 22-21-260(5), (6), (10), (11),

(13) —Appendix I

Code of Alabama (1975), § 22-21- 261 — Appendix J

Code of Alabama (1975), § 22-21-263 — Appendix K

Code of Alabama (1975), § 22-21-265 (a) — Appendix L

Code of Alabama (1975), § 22-21-266 — Appendix M

Code of Alabama (1975), § 22-21-268 — Appendix N

Code of Alabama (1975), § 22-21-270 (e) — Appendix O

Code of Alabama (1975), § 22-21-276 (b), (c) —Appendix P

Code of Alabama (1975), § 41-22-20 (k) — Appendix Q

SHPA Procedures Manual (Rev. 1979), § 410-1-3-.01 (6) (ii)

— Appendix R

SHPA Procedures Manual (Rev. 1979), § 410-1-7-.01 (21)

(i) — Appendix S

SHPA Rules and Regulations (Rev. 1991), § 410-1-8-.22 —

Appendix T

SHPA Rules and Regulations (Rev. 1991), § 410-1-8-.26 —

Appendix U

STATEMENT OF THE CASE

This case has had a long and tortured existence. It began

more than ten (10) years ago, on August 13, 1985, in a state

agency hearing room in Montgomery, Alabama. On that date, the

Alabama State Health Planning Agency (“SHPA”) conducted

what it said was an “emergency” administrative hearing; its

purpose was to consider applications seeking SHPA regulatory

approval for the proposed relocation of two skilled nursing (e.g.,

“nursing home”) facilities which were in existence and being

operated in Marshall County, Alabama. As Alabama’s sole health

planning agency, SHPA is charged with the responsibility of

“prevent[ing] the construction of unnecessary and inappropriate

health care facilities through a system of mandatory reviews of

new institutional health services. . . .” Section 22-21-261 of the

Code of Alabama (1975). (See Appendix “J”). Accordingly,

proposed relocations of existing health care facilities

(particularly when the relocations involve the construction of

new or “replacement” facilities) must have SHPA approval in

order for the relocations to be lawfully accomplished. Sections

22-21-263 (a) (3) and 22-21-265 (a) of the Code of Alabama

(1975). (See Appendices “K” and “L”).

The most significant legal problem presented by the SHPA

“emergency” hearing was the fact that the owner of the two

nursing homes, petitioner E. L. Clark, was never furnished (by

SHPA or by the parties filing the applications) with any notice

whatever of the filing of the so-called “emergency relocation”

applications — or of the SHPA hearing. Moreover, Mr. Clark was

neither an applicant for, nor has he ever subsequently agreed to,

the proposed “relocation” of his two nursing home facilities, the

construction and operation of which predated the 1979 advent of

the Certificate of Need (“CON”) program in Alabama. The

relocation applications were filed not by Mr. Clark, as the owner,

but by Albertville Nursing Home, Inc. and Barfield Health Care,

Inc. as the lessee-operators of the Clark facilities.

The lessee-operators took the position, at the SHPA hearing,

that there were significant structural deficiencies in the two

facilities and that both of the nursing homes needed to be

“replaced.” The lessees, therefore, sought SHPA approval for

them to construct “replacement” nursing homes in Marshall

County. Because he was never furnished with a pre-hearing

notice, Mr. Clark was not present when the SHPA considered the

proposed relocations. The SHPA Certificate of Need Review

Board’s hearing transcript indicates that the nursing home owner

was not expected to attend the meeting for purposes of voicing

any Opposition to the proposed construction of “replacement”

facilities.

After the Agency issued its approval for the replacement

projects, the lessee-operators commenced construction of new

nursing home facilities. When Clark learned what had occurred,

he immediately registered his opposition to the construction

projects with SHPA. SHPA refused to take action on his

complaint, however, saying that its decisions on the two

“emergency relocations” were final and non-appealable.

Therefore, Clark filed a federal action in the United States

District Court for the Middle District of Alabama on or about

February 6, 1986, E. L. Clark v. Derrill Crowe, et al., Case No.

86-T-139-N. In his federal action, subsequently amended, Clark

took the position that he had suffered a fundamental deprivation

of due process of law through the actions of SHPA and his former

lessee-operators. He argued that pre-deprivation process had

been altogether feasible and practicable and, therefore, that

SHPA should be compelled to take corrective action. He also

claimed that the decision to allow the relocation and replacement

violated the Constitution’s due process clause because it was

arbitrary and capricious. The district court agreed.

Judge Myron Thompson wrote that the court was

“convinced, from a review of Alabama law, that a person holding

a CON issued by SHPA has a protected property interest in that

CON which can be taken away only if attended by adequate

procedural protections. The CON statute provides that a person

holding a CON retains the privileges authorized under it until he

or she fails to offer the authorized health care facilities and

services for a period of twelve months. The CON can, therefore,

be terminated only for cause.” The court further noted that

SHPA’s 1979 Procedures Manual “expressly contain[ed] a

“grandfather clause’ covering existing [health care] facilities.

Moreover, the directors and board members of SHPA have

routinely used the term ‘grandfather status’ to refer to such

facilities.” (See Appendix “R” hereto).

The district court held that Mr. Clark was entitled to full

participation in a new SHPA hearing. “Because SHPA

improperly denied Clark notice of [the lessee-operators’]

requests to transfer beds from Clark’s facilities to their own, and

an opportunity to be heard on these requests, SHPA must now

offer Clark a meaningful opportunity to be heard on the requests

and must further reconsider the requests de novo in light of any

appropriate comments and evidence Clark might present. The

court will, therefore, enter appropriate declaratory and injunctive

relief to this effect.” Judge Thompson noted, in his memorandum

opinion, that the ultimate decision which had to be reached was

“whether Clark holds a grandfathered interest in the Albertville

and Guntersville facilities. SHPA argues that Clark was a simple

landlord, who had at most only a property interest in the physical

buildings at Albertville and Guntersville. The credible evidence

before the court does not fully support this contention. The

court agrees with Clay H. Dean, the drafter of the CON

legislation and a former director of SHPA, that Clark leased more

to [the former lessee-operators] that just physical plants. He

leased nursing home operations to them. Clark and his tenants

agreed that the tenants would continue to operate and administer

nursing homes in the two facilities. An express condition in the

lease contracts was, therefore, that the tenants would take over

nursing home operations. Moreover, in one of the leases entered

into by the parties, Clark leased a specific number of ‘beds,’ and

calculated the rent by the number of ‘beds’ in use in the building.

This lease further provided that, should the tenant expand the

nursing home beds in that facility, there would be a proportional

increase in rent. The court agrees with Dean and finds from the

evidence that Clark had a sufficient interest in the operation of the

two facilities to enjoy a ‘grandfather[ed] status’ when the CON

statute went into effect in 1979.” (Emphasis added).

While the district court found that the Clark property interest

was substantial and definite enough to entitle him to procedural

due process protection, it concluded that the question of

substantive due process was a matter best left to the state agency

and to Alabama’s judicial system. “The court cannot say that [Mr.

Clark’s grandfathered] status was exclusive, however. [The two

former lessees], as operators of the two nursing homes, also had

an expectation in the continued operation of the two facilities

when the CON law went into effect [in 1979].

“Clark asks that the court determine who holds the superior

interest. The court declines the invitation. The determination

turns on more than just legal principles. Whether a lessor or a

lessee of a nursing home operation should be considered as the

superior holder of a grandfathered operation is more than likely

also a matter of policy. Indeed, there was conflicting testimony

before the court as to which result in general, and in this case

specifically, would better further the public interests of the CON

statute. SHPA should resolve this issue, not the court.”

Accordingly, the matter was sent back to the SHPA with

instructions that SHPA conduct a public hearing on the proposed

“relocation” of the two facilities and that Mr. Clark be permitted

to participate therein.

The “contested case proceedings,” conducted on remand,

were accomplished under the aegis of the Alabama

Administrative Procedure Act. § 41-22-1, et seq., of the Code of

Alabama (1975). Under and by virtue of those proceedings,

several facts were established which Clark contends should have

been, but which were apparently not deemed to be, of paramount

importance to the SHPA decisionmaking process, viz:

1, Other than the case which was under review, no

SHPA employee could identify a prior instance wherein

CON approval had been sought and/or granted for the

“relocation” or “replacement” of a health care facility by the

lessee-operator thereof and without the knowledge and

consent of the owner of the facility. SHPA has historically

had the practice of recognizing the owners of health care

facilities, the construction and operation of which predated

the advent of the CON review program, as the persons or

entities having the permanent interest in and to the facilities’

“bed authority” rather than the mere operators of the

facilities. SHPA offered no explanation as to why Clark was

being treated differently.

2. James Sanders, Director of SHPA CON Review and

Operations, testified that with the exception of the E. L.

Clark case, he was unaware of any “relocation” CON

application — “emergency” or otherwise — which had been

granted by SHPA without the owner of the facility either

knowing about it or concurring in the proposal. He further

testified that it was commonplace at the SHPA to hear the

term “leasing the beds of a facility,” a reference having to do !

with the practice of facility owners’ entering into ;

management contracts and lease agreements with third |

parties who would operate the facilities. At the end of he :

contract or lease, of course, all right, title and interest in and |

to the facility and its “bed authority” remained with the

owner of the facility.

3. Former SHPA Deputy Director and Acting

Executive Director, Charlie Stewart, testified that he could

not recall any instance wherein a health care facility had

been established and operated in the pre-CON period before

1979, then later leased to an operator and then later leased to

yet another operator and where the second or third

generation operator leased from the previous lessee or the

lessee in possession of the facility on the effective date of

the CON program. In each instance, the later lessee-

operators had all leased from the pre-1979 owner of the

facility. Said another way, SHPA had historically

recognized the 1979-era owners of Alabama health care

facilities as the persons or entities “grandfathered” for

continued SHPA recognition — not the persons or entities

that were merely leasing or operating facilities on the

effective date of the Alabama CON program. (E.g., facility

leasehold interests were grandfathered in 1979 for the

durations thereof but the permanent right, title and

interest in and to a facility’s “bed authority” continued to

be the property of the owner of the facility. Said another

way, SHPA has historically treated leasehold interests as

having a grandfathered status subject to expiration at the

end of the lease; on the other hand, the “bed authority” for

a health care facility does not expire).

4. Other than the E. L. Clark case, no other

“emergency” CON applications have been filed with SHPA

proposing the “relocation” of entire health care facilities,

without there having been any testimony from the moving

parties aside from the statements of their legal counsel.

Other than this case, no other “emergency” CON

applications have ever been received, processed and

decided by SHPA without the applicants’ having first paid,

in advance, the requisite CON application filing fees. Other

than this case, if and in the event the “emergency” CON

commitment or obligation were not incurred within ninety

(90) days of the CON approval, SHPA would declare the

“emergency” approval to be null and void and of no further

legal force or effect. Petitioner Clark suggested below, as he

does here, that such utterly unique circumstances give rise

to the logical inference that he was “singled oui” for the

illegal treatment complained of herein.

5. Alan Koch, who testified as an expert witness in

support of the position of the lessee-operators, initially

stated that based upon the operation of the CON program in

Alabama, SHPA had treated the operators of health care

facilities, as of the effective date of the CON law in 1979, as

the “health care facility” for purposes of CON review. In

other words, according to Koch, entities such as Albertville

Nursing Home, Inc. and Barfield Health Care, Inc., if they

had been the lessee-operators of existing health care

facilities on the effective date of the CON program, had

been treated by SHPA as having the permanent rights in and

to the designated “bed authority” of the facility they were

operating.

However, on cross examination, Mr. Koch was wholly

unable to explain how it is that subsequent lessee-operators

(i.e., persons or firms who leased and operated health care

facilities at some time following the expiration of the leases

of the persons or firms who or which had been operating the

facilities on the effective date of the CON program in 1979)

acquired the right to lease and operate CON approved

facilities when the leases of such subsequent parties were

entered into not with the 1979-vintage lessee-operators

but with the original owners of the respective health care

facilities. If the respondents’ theory in this case represented

a correct statement of SHPA policy and practice, each

succeeding lessee-operator would “lease” or purchase his

or her CON “bed authority rights” from the immediately

preceding \essee-operator.

Under the respondents’ “theory” of the case, there

would necessarily have to be a continuous chain of “bed

authority” acquisition running all the way back, in the case

of each health care facility, to the person or entity which was

the operator of the facility on July 30, 1979. This has not, in

fact, been the SHPA’s practice during the years of its

operation in Alabama.

6. Testimony from Tigner Zorn, former Director of the

Bureau of Health Facilities Construction of the Alabama

Department of Public Health, was to the effect that he knew

of no basis for, nor any procedures connected with, the

SHPA’s inspecting health care facilities for structural

deficiencies instead of — or even in some conjunction with

— the State of Alabama Department of Public Health. He

testified he had never been involved with any kind of joint

inspection of any kind of a health care facility with officials

from the SHPA. In fact, Zorn testified that he was unaware

of any state department or agency other than the

Department of Public Health which is charged with the

responsibility of regularly inspecting Alabama’s health care

facilities for structural defects. This, petitioner Clark has

contended, was clear evidence in support of his proposition

that if there had truly been something structurally “wrong”

or dangerous at his two nursing home facilities, the

Department of Public Health would have required the

conditions to be brought up to Code standards. Failing to get

this done, Public Health could have revoked the operational

licenses for the two nursing homes. This was never done,

however. Such fact simply underscores the fact that SHPA

should never have been involved in the Clark nursing home

matter to begin with.

Said another way, if the issues in dispute had to do with

structural deficiencies in the two Clark nursing homes,

those issues should have been resolved by the Alabama

Department of Public Health and not the Alabama State

Health Planning Agency. In effect, SHPA moved into an

area where it had no authority and it purported to use the

“emergency CON application” regulations as the “basis” for

what it did with the E. L. Clark nursing home “bed

authority.”

7. Petitioner Clark relied, at the administrative hearing

level, upon the expert testimony of Clay H. Dean, the former

SHPA Executive Director and the author of the Alabama

CON statute and the original SHPA Procedures Manual

(1979). Among other things, Mr. Dean testified:

(a) Health care facilities which were in existence

and being operated as such on the effective date of

the CON law in Alabama, July 30, 1979, were

“grandfathered” and they continued to enjoy a permanent

“franchise” from that date forward with regard to the “bed

authority” extant on such date at such facilities.

(b) CON authority issued or conferred by SHPA —

whether by “grandfathering” or by the execution of a new

Certificate of Need document — does not, by itself,

authorize the CON holder to “operate” a health care

facility in the licensing sense of the word. Rather, it

simply authorizes the CON holder “to show the state that

he is capable and has a plan and can finance a health care

facility up to the point where it opens to serve. The CON

does not authorize him to operate anything; but to prepare

to become capable of operating a facility.” In short, the

CON authority is legal authorization for the holder to

“offer” institutional health services (i.e., through the

holder’s securing of a license; through the holder's

employment of an administrator who is licensed; through

a lease of the health care facility or through the

association of a management company designed to

operate the facility).

program did not authorize the state to “take any other

action [with regard to existing health care facilities and

services in place on the effective date of the Act). It [did

not) authorize the state to close [facilities] simply

because [they did not have or obtain] a CON.”

(d) The CON “grandfathering” process entitled E.

L. Clark, following the effective date of the CON statute,

to continue owning his nursing homes with their

respective bed authorities and to offer health services in

or through such beds. He was “grandfathered” so that he

could do so by applying for a license himself or by leasing

the facilities to lessee operators who could obtain licenses

to run the facilities.

(e) What existed on the effective date of the CON

law, insofar as Clark was concerned, was two nursing

home facilities — not simply “buildings” — with 133

beds in one nursing home and 103 beds in the other. Also

on that date, two leases existed authorizing the lessee-

operators to continue their operation of the Clark

facilities for the duration of the leases. These things

combined — that is, the health care facilities and the

people who were operating them — constituted the total

package which was “grandfathered” (albeit for different

durations) under the CON program. However, the “basic

facility is what — the owning entity is the basic facility.

When the leasehold. . . all [the owner] is doing is leasing

that facility for somebody else to operate it. If the basic

facility does not exist, the lessor could not operate a

health facility. [No one] could get a license.”

(f) A “building” which is leased to some party

under a regular real estate ground lease” is not a “health

care facility” for CON purposes. Rather, a health care

facility is a building that is built, designed, equipped

[and] maintained to offer a health service.”

(g) Despite the fact that Clark had personally

operated the two facilities only a short time himself —

and only the Albertville facility as of the effective date of

the CON law in Alabama — it is true, for CON purposes,

that Clark had “offered” nursing home services

continually through both facilities from the date they

were each opened. The fact he was “offering” services

through lessees rather than by obtaining a license himself

had nothing to do with the fact of his “offering”

healthcare services in or through the facilities and as

contemplated by the Alabama CON statute.

(h) The “grandfathered” interest of Mr. Clark in and

to his nuring home facilities and the “bed authority”

thereof continued indefinitely under the CON program’s

normal and customary operation. On the other hand, the

“grandfathered” interests of the lessee-operators

continued for the terms of their respective leases. When

the leases expired, the interests of the operators (which

they had temporarily acquired from petitioner Clark by

virtue of their lease of his “bed authority”) also expired.

(i) Clark was never a mere “landlord” at least

insofar as the normal operation of the Alabama CON

program was concerned. In both instances, “Clark built a

nursing home. It was designed for a nursing home. It was

inspected as a nursing home. It was approved as a nursing

home. It was equipped as a nursing home. And he had

presented to the State Board of Health a staffing proposal

to operate it as a nursing home. So it was a nursing home.

And then he elected to lease [the nursing home to a lessee-

operator for a finite period of time].”

(j) Based upon the normal operation of the Alabama

CON program, the emergency” CON procedures are to be

utilized only with regard to unforeseen events that

endanger the health and safety of the patients.” According

to Mr. Dean, he could not find anything factually that

could be classified as “unforeseen events” with regard to

either the Albertville or the Guntersville facility.

8. Judge Thompson’s ruling in the federal action made

it clear that the Alabama CON statute, once effective,

authorized a person “to offer” health care facilities and

services in only two circumstances: (1) if the person had

obtained a CON from SHPA therefor or (2) if the person was

already “offering” the facility or services when the CON

statute went into effect. If a person sought to offer health

care facilities and/or services under any other

circumstances, SHPA would consider the operation as

illegal under the CON statute and would normally seek a

court injunction to enjoin the same. [Memorandum Opinion

at p. 5).

9. Judge Thompson’s ruling made it clear that under

the normal and customary operation of the Alabama CON

program, neither Clark nor his two lessee-operators at

Albertville and Guntersville, were required to obtain CON’s

in order that skilled nursing services could continue to be

“offered” in or through the two referenced facilities. Clark

and his lessee-operators could continue to offer services in

or through the 236 bed authority of the two nursing homes

without CON approval; a CON would be required only if or

when a decision were made to build new or “replacement”

facilities or to offer new institutional health services as

defined by law. The two nursing home facilities were, in

effect, “grandfathered” in under the Alabama CON

program. [Memorandum Opinion at pp. 5-6].

10. The value of “grandfathered” facilities, such as

those at Albertville and Guntersville, increased

dramatically — especially in those areas such as

Marshall County where the “net need” for beds had been

exhausted (i.¢., filled). The CON law, by restricting the

number of beds which could be located in a county and

by “grandfathering” in these existing facilities,

conferred a new nd independent value on these facilities.

Such facilities could lose their CON status under the

review program only when health care services ceased to

be “offered” in or through the nursing homes for a

period of twelve (12) months or more. A nursing home

facility without CON authorization (whether by “grand-

fathering” or by the issuance of a Certificate) was (and is)

of no value at all as a nursing home. (Emphasis added).

[Memorandum Opinion at p. 6].

In other words, once the “bed authority” was stripped

from the Clark nursing home facilities, the naked structures

themselves were valueless to Mr. Clark. The design,

equipment and space utilization schemes attendant to both

structures were all related to skilled nursing facility

operations and nothing else. Therefore, the true “value” of

the facilities — for E. L. Clark — resided in the SHPA-

recognized “bed authority” of the two nursing homes and

not in the bricks and mortar of the two “buildings.” For this

reason, Clark has contended from the outset of this

litigation that he has been dispossessed of his property

without compensation and in violation of his constitutional

right to be free from the deprivation of substantive due

process. Regardless of the procedural niceties which

attended the “remand” hearing before the State Health

Planning Agency, Mr. Clark was deprived of his

“grandfathered” status and such deprivation is simply

unauthorized under well settled Alabama law. Regardless of

the procedures which were employed at the hearing, SHPA

has done something that it is just not authorized under law to

do: take away the Clark “bed authority” and “give it” to

other persons or entities.

11. Even at the “remand” hearing before SHPA, the

“relocation” proponents contended that it was mandatory

that the new facilities be utilized in place of the Clark

nursing homes. The “health and safety of the residents” was

cited as the over riding concern and was assigned as the

legal basis for the proposed CON approval. Yet the evidence

demonstrated that none of the alleged structural defects in

the Clazk nursing homes had affected the continued

reimbursement of the two nursing homes by the Alabama

Medicaid Agency during the period of 1979 through 1985.

No explanation was ever offered as to why Medicaid had not

terminated the two facilities’ reimbursement if they were

being operated in dangerous conditions.

Additionally, the record is clear that neither facility

suffered a licensure. revocation or even a licensure

“downgrade” during the leasehold terms of the Clark lessee-

operators. The Alabama Department of Public Health is

authorized to place nursing home and hospital facilities on

“probation” — and, in extreme cases, to revoke the licenses

— when serious operational or structural defects are found

and not corrected. This simply did not happen with the

Albertville and Guntersville facilities, giving further weight

to the Clark argument that this was a contrived “hearing”

designed to give the appearance of legitimacy to what was

otherwise an illegal confiscation of his private property.

12. As some further indication of the lengths to which

the SHPA was willing to go in “upholding” its original

decision in favor of the Clark lessee-operators, the Supreme

Court should know that the SHPA opined that Albertville

Nursing Home, Inc. and Barfield Health Care, Inc., were

entitled to CON approval at the expense of petitioner E. L.

Clark. Yet, under the lessee-operators’ legal theory” in this

matter, their “rights” to the Clark “bed authority” must be

based upon who were the operators of the nursing homes

on the date the CON law became effective in Alabama. It is

interesting (and informative) to note that Barfield Health

Care, Inc., was not even in existence on July 30, 1979. The

1979 operator of the Guntersville facility was NOT

“Barfield Health Care, Inc.” but, rather, another corporation

by the name of “Claysville-Guntersville Nursing Home,

Inc.” Barfield Health Care, Inc., was simply a later sub-

lessee of Claysville-Guntersville Nursing Home, Inc.

The SHPA administrative order seeks to “overcome”

this deficiency by stating that to the extent “necessary” in

order to effectuate approval of Barfield Health Care, Inc.,

the CON rights of Claysville-Guntersville Nursing Home,

Inc., are “transferred” to Barfield. This Court should note,

with great concern, just how determined this indicates the

SHPA to have been in this matter. Alabama law is clear that a

Certificate of Need is not transferable, assignable or

convertible and it is valid solely to the person and purpose

named thereon. The attempted or purported “transfer”

from Claysville-Guntersville Nursing Home, Inc., to

Barfield Health Care, Inc. (which also makes the

threshold assumption that the former corporation had

CON “bed authority” which it was capable of transferring

to the latter) is void as a matter of law.

See Appendix “S” hereto.

REASONS FOR GRANTING THE WRIT

THIS COURT HAS JURISDICTION OVER THIS

CASE AND MAY APPROPRIATELY DECIDE THE

QUESTION PRESENTED FOR REVIEW.

This Court has held that, in order for it to be in position to

assume jurisdiction over a case, the federal question presented in

that case must be “either raised or squarely considered and

resolved in the state court.” JIlinois v. Gates, 462 U.S. 213, 76 L.

Ed. 2d 527, 103 S. Ct. 2317 (1983). In the present case, the

petitioner raised — in both federal and state actions — the issues

related to deprivation of procedural and substantive due process.

In the amended federal complaint, Clark alleged that he had

“been deprived of both procedural and substantive due process

guarantees of the Fourteenth Amendment to the United States

Constitution. He says the actions complained of were not random

and unauthorized acts of state employees or actors but they were

taken pursuant to established state procedures (i.e., the

“emergency CON” procedures of the State Health Planning

Agency).”

After prevailing on his initial procedural due process claims

in United States District Court, Clark renewed his substantive

arguments at the SHPA administrative agency level. After SHPA,

for the second time, dispossessed him of his “bed authority”

rights, Clark advanced his constitutional claims at the state

circuit court level. In those proceedings, he alleged that the

actions taken by SHPA were “in violation of constitutional or

statutory provisions”; that they were “in excess of the statutory

authority of the agency”; that they were “made upon unlawful

procedures” and that, in particular, the actions had been

“unreasonable, arbitrary or capricious or characterized by an

abuse of discretion or a clearly unwarranted exercise of

discretion.” He further asserted that he had “been deprived of his

constitutionally guaranteed right to equal protection of the law

and due process of law by and through the agency action

complained of.” Although the constitutional argument was

clearly and appropriately raised in the circuit court of

Montgomery County, the retired judge who was called in to hear

the case never addressed it. (See Appendix “E” hereto).

In the appeal to the Alabama Court of Civil Appeals, Clark

once again argued the deprivation of due process in and through

the unauthorized action of the SHPA. He asserted that “there was

no legal way for the [lessee] applications to conform to each of

the ‘five required findings’ of Section 22-21-266 of the Code of

Alabama (1975). * * * Fora state agency to interpret and enforce

its rules, regulations and policies in one manner and fashion for

certain persons, but in a totally different (and harmful) manner

for other persons is absolutely a denial of the procedural due

process rights of the adversely affected party; in this case, Mr.

Clark. * * * In addition, as asserted previously, the SHPA action

rises to the level of an unconstitutional ‘taking’ of Mr. Clark’s

property, further violating his constitutional right to be free from

substantive due process. . . wrongs.”

Unfortunately, the Court of Civil Appeals was apparently

impressed by the fact that the administrative record “contains

almost 1930 pages of transcribed testimony and 500 exhibits.”

Focusing upon evidence related to structural problems with the

nursing homes — and totally ignoring the constitutional

arguments related to the Clark property interests — the Court of

Civil Appeals affirmed the trial level court. (See Appendix “D”

hereto).

In his petition for writ of certiorari filed with the Alabama

Supreme Court, Mr. Clark renewed his constitutional argument.

He asserted that the SHPA had acted one way in his case and in a

different way in every other case it had reviewed and that this was

a denial of procedural due process. Further, he argued that “the

SHPA action amounts to an unconstitutional ‘taking’ of Mr.

Clark’s property, further violating his constitutional right to be

free from substantive due process injuries.”

The Alabama Supreme Court also ignored his constitutional

arguments. After initially granting Mr. Clark’s petition (see

Appendix “B” hereto) it later quashed the writ and denied the

petition (see Appendix “A” hereto).

Petitioner E. L. Clark, therefore, pleads with the United

States Supreme Court to address the merits of his constitutional

claim of deprivation of due process of law.

II.

THE ACTION OF THE STATE HEALTH PLANNING

AGENCY IS AN UNCONSTITUTIONAL “TAKING” OF

THE PETITIONER’S PROPERTY AND A VIOLATION OF

HIS PROCEDURAL DUE PROCESS RIGHTS.

Mr. Clark is entitled to a full, merits-based, review for at

least two important reasons. First, the action of the SHPA

amounts to an unconstitutional “taking” of his property in

derogation of his constitutionally guaranteed right to be free from

substantive due process violations. Second, the SHPA action is

procedurally infirm because — as clearly shown by the record

itself — the state agency has acted in one fashion as to E. L. Clark

but in a totally different fashion with regard to every other

“relocation” application it has ever handled. Such arbitrary and

capricious conduct violates Clark’s right to be free from

procedural due process violations under the Fourteenth

Amendment.

In substantive due process claims, this Court has made it

clear that each case must be examined on its own facts. Many

different kinds of conduct can violate the “takings” clause of the

constitution. Ruckelshaus v. Monsanto Co., 467 U.S. 986, 81 L.

Ed. 2d 815, 104 S.Ct. 2862 (1984) (each case must be

independently reviewed); First English Evangelical Lutheran

Church v. County of Los Angeles, 482 U.S. 304, 96 L. Ed. 2d 250,

107 S. Ct. 2378 (1987) (deprivation of all uses of land can violate

“takings” clause); Penn Central Transportation Company v. City

of New York, 438 U.S. 104, 57 L. Ed. 2d 631, 98 S. Ct. 2646

(1978) (land use regulation which denies owner economically

viable use of his land can be a “taking”). It is also clear that a

government regulation’s interference with a property owner's

“reasonable, [or distinct] investment-backed expectations” can

constitute a taking.” Penn Central, supra; Kaiser Aetna v. United

States, 444 U.S. 164, 62 L. Ed. 2d 332, 100 S. Ct. 383 (1979). This

Court has identified many factors which should be taken into

account when determining whether a governmental action has

gone beyond reasonable regulation and effected a “taking”: the

character of the government action, its economic impact and its

interference with the reasonable, investment-backed,

expectations of the plaintiff. Ruckelshaus, 467 U.S. at 1005. A

“reasonable investment-backed, expectation” must be more than

a “unilateral expectation or an abstract need.” Jd. (citation

omitted).

In this case, E. L. Clark obviously had more than a

“unilateral expectation” that he could continue to enjoy the fruits

of his property. Indeed, he built his nursing homes before there

was a “Certificate of Need” program in Alabama; the facilities

were — by express statutory grant — “grandfathered” for

continued use and operation as nursing homes. Yet, without

compensation and without statutory authority for doing so, the

SHPA has dispossessed Mr. Clark of his property and it has

ostensibly “transferred” it to his former lessee-operators.

In Lucas v. South Carolina Coastal Council, 505 U.S. __,

120 L. Ed. 2d 798, 112 S. Ct. 2886, (1992), this Court made it

clear that a governmental agency cannot “change the rules” or

enact or interpret regulations so as to effectively dispossess a

person of his or her property. Yet the State of Alabama, acting

through the SHPA, has done precisely that in relation to Mr.

Clark. Although the legislature decreed that the CON program

would only apply to new institutional health services proposed to

be offered or developed in Alabama after 1979 — and even

though SHPA itself had a rule expressly “grandfathering”

existing health care facilities for continued operation with their

then-designated “bed authority” —Mr. Clark has had all that

taken away from him. The only “explanation” has been that the

nursing homes “needed replacing” because of structural

problems. Yet the record is clear that such issue (if it existed in the

first place) was one for the Department of Public Health, not the

SHPA, to identify and resolve.

In Resolution Trust Corporation v. Town of Highland Beach,

18 F.3d 1536 (11th Cir. 1994), members of a joint venture filed a

civil action against the city alleging denials of substantive and

procedural due process. The claim was based upon the town’s

conduct in reinterpreting an ordinance to effect a termination date

for the development of property which was earlier than

previously had been represented to the plaintiffs. Finding that the

plaintiffs had a protectable property interest, the court, citing

Perry v. Sinderman, 408 U.S. 593, 33 L. Ed. 2d 570, 92 S. Ct.

2694 (1972), noted that property rights are not limited by a few

rigid technical forms. Rather, “property” denotes a broad range of

interests that are secured by existing rules or understandings.

Highland Beach at 1544. Moreover, the court wrote that

“reasonable expectations in a particular status may attain

protected property status based upon a state law, regulation,

policy or a mutually explicit understanding a governmental body

puts forth, and such an interest may be implied from words or

conduct.” Perry, 408 U.S. at 601.

As noted previously, the record below makes it crystal clear

that health care facility owners in Alabama have, in the years

since 1979, enjoyed a specific “reasonable expectation in a

particular status.” That is, owners of health care facilities, the

existence and operation of which predated the advent of the CON

program in 1979, have had a “grandfathered” status in every case

except the unique case of E. L. Clark. Only his case is said to be

“different;” yet none of the respondents has been able to explain

why this is so.

This is not a “licensure” case. It is a case dealing with a

protected, “grandfathered,” property interest. In A.A. Profiles,

Inc. v. City of Fort Lauderdale, 850 F.2d 1483 (11th Cir. 1988),

cert. denied, 490 U.S. 1020 (1989), a landowner brought an

action against the city and its commissioners seeking relief for

the alleged unlawful taking of its property without just

compensation. It was held that the city’s adoption of an ordinance

which rezoned property of the landowner was an unconstitutional

taking. The basis for the decision is summarized thusly: “[T]he

original resolution granted appellant a property interest. The

rezoning ordinance denied appellant this property interest

because the new classification did not accomodate a development

like the wood chipping operation [envisioned in the original

zoning]. The city commission’s action, therefore, was a

confiscatory measure. ‘[I]f a regulatory undertaking is

confiscatory in nature, it is ataking.’ ” Jd. at 1488 (citing Wheeler

v. City of Pleasant Grove, 664 F.2d 99 (Sth Cir. Unit B, Dec.

1981), cert. denied, 456 U.S. 973 (1982)). The court also rejected

the city’s argument that land use regulations which promote

health, safety, morals or general welfare must — necessarily —

be upheld.

The city contended that the district court had been correct in

upholding its action stopping the plaintiff's development project

as a proper exercise of police power. Yet such argument was

rejected, with the court noting that if the public’s complaints had

been truly justified, criminal and civil remedies were available to

resolve them. “While local regulations have been violated, the

city cannot cure such violations with a measure that violates the

constitution.” Jd. at 1488. In much the same fashion, if the two

Clark nursing homes had truly had structural deficiencies

which threatened “the health and well being of the nursing

home residents,” there were plenty of ways to resolve the

problems. The most obvious method would have been with a

complaint to the Department of Public Health, which would have

required an immediate cure of the problems. Certainly this would

have been a preferable (and lawful) means of resolving the

problems. Instead, the lessee-operators, with the state agency’s

assistance, endeavored to totally dispossess Mr. Clark of his

property rights without compensation and in total derogation of

standing SHPA policy and practice.

The decision is also flawed for procedural due process

reasons. The courts below should have found, as the evidence

demonstrated, that the SHPA action was arbitrary and capricious

and not made in compliance with applicable law. The Clark case,

indeed, is the only case in SHPA history wherein it has treated the

mere lessee-operator of a health care facility as having the

permanent control of the “bed authority” of such facility. “(I]t is

essential that administrative rulings be consistent and that a

radical departure from established interpretation and practice

cannot be made except for compelling reasons. To act in one

manner in one case and the opposite manner in another case,

where the circumstances are the same in all material respects,

would be to act arbitrarily or, at best, unreasonably. This amounts

to a deprivation of procedural due process. See, e.g., Mobile

County Gas District v. Mobile Gas Service Corporation, 227 So.

2d 565, 284 Ala. 664 (1969). In this regard, the former Fifth

Circuit examined the effect of the lack of consistent standards in

Frozen Foods Express, Inc. v. United States, 535 F.2d 877 (Sth

Cir. 1976), viz:

. .. [L]aw does not permit an agency to grant

to one person the right to do that which it

denies to another similarly situated. There

may not be a rule for Monday, and another

rule for Tuesday, a rule for general

application, but denied outright in a

specific case.

535 F.2d at 880 (citations omitted)(emphasis added). As the court

stated in Frozen Foods, “an agency of government cannot deny

one a benefit and then grant it to another on a case-by-case basis

without applying standards, since to do so would be to act

arbitrarily and capriciously.” 535 F.2d at 880; see also, Pritchett

v. Nathan Rodgers Construction and Realty Company, 379 So. 2d

545 (Ala.1980). The arbitrary manipulation of the law, simply to

suit the interest of the governmental agency, violates the

principles of due process under the Fourteenth Amendment. As

this Supreme Court has reaffirmed, “the Due Process Clause of

the Fourteenth Amendment was intended to prevent government

from abusing [its] power. . .” Collins v. Harker Heights, TX, 503

U.S. _, 117 L. Ed. 24 261, 112 S. Ct. __ (1992).

CONCLUSION

In every case dealing with health care facility “relocations”

since its creation in 1979, the Alabama State Health Planning

Agency has treated the facility owner as the person or entity

vested with the permanent right, title and interest in and to the

“bed authority” of the subject facility. In the case of E. L. Clark,

and only in this case, the SHPA has treated the former lessee-

operators of the facilities as the entities authorized to file for

relocation approval.

There is no justification for what has happened in this case.

E. L. Clark has been struggling, since 1985, to regain control over

the property which was taken from him. He has suffered both

procedural and substantive violations of due process. He has been

treated in one fashion while all other similarly situated persons

and entities have been treated in another fashion. His property has

been taken — confiscated — without compensation.

For the reasons cited, the petitioner respectfully suggests

that the Supreme Court should agree to hear and decide this case

on its merits. No other court, to date, has done so.

Respectfully submitted,

JUSTICE D. SMYTH, II

Counsel of Record

PHILIP H. BUTLER

ROBISON & BELSER, P.A.

Attorneys for Petitioner

210 Commerce Street

Montgomery, Alabama 36104

(334) 834-7000

Date: October 2, 1995

APPENDIX A — JUDGMENT OF THE SUPREME

COURT OF ALABAMA FILED MAY 19, 1995

IN THE SUPREME COURT OF ALABAMA

May 19, 1995

1931567

Ex parte E.L. Clark. PETITION FOR WRIT OF CERTIORARI

TO THE COURT OF CIVIL APPEALS (In re: E.L. Clark v.

Derrell O. Fancher, et al.) (AV93000054) (Montgomery: CV-91-

2346)

CERTIFICATE OF JUDGMENT

WHEREAS, on November 30, 1994, a Writ of Certiorari to

the Court of Civil Appeals was granted by this Court, and the

cause was set down for submission pursuant to Rule 39, Alabama

Rules of Appellate Procedure,

WHEREUPON, come the parties and the Petition for Writ of

Certiorari being submitted and duly examined and understood by

the Court, it is considered by the Court that the writ heretofore

issued should be quashed and that the petition should be denied.

IT IS, THEREFORE, CONSIDERED AND ORDERED that

the Writ of Certiorari heretofore issued to the Court of Civil

Appeals be, and the same is hereby, quashed, and the Petition for

Writ of Certiorari be, and the same is hereby, denied. NO COSTS

TAXED. NO OPINION.

PER CURIAM — Maddox, Shores, Houston, Kennedy,

Ingram and Cook, JJ., concur

Appendix A

I, Robert G. Esdale, as Clerk of the Supreme Court

of Alabama, do hereby certify that the foregoirg is

-a full, true and correct copy of the instrument(s)

herewith set out as same appear(s) of record in said

Court.

Witness my hand this 19 day of May 1995

s/ Robert G. Esdale

Clerk, Supreme Court of Alabama

APPENDIX B — DECISION OF THE SUPREME COURT

OF ALABAMA FILED NOVEMBER 30, 1994

THE STATE OF ALABAMA—- JUDICIAL DEPARTMENT

IN THE SUPREME COURT OF ALABAMA

November 30, 1994

1931567

Ex parte E. L. Clark. PETITION FOR WRIT OF CERTIORARI

TO THE COURT OF CIVIL APPEALS (In re: E. L. Clark v.

Derrell O. Fancher, et al.) (AV93000054) (Montgomery: CV-91-

2346-G)

NOTICE

Petition for writ of certiorari to the Court of Civil Appeals is

granted. See Rule 39(f) and (h), Alabama Rules of Appellate

Procedure, for instructions regarding the filing of additional

briefs and oral argument.

PER CURIAM — ALMON, HOUSTON, KENNEDY,

INGRAM AND COOK, JJ.

PLEASE USE THE ABOVE CASE NUMBER ON ALL

FILINGS IN CONNECTION WITH THIS CASE.

I, Robert G. Esdale, as Clerk of the Supreme Court

of Alabama, do hereby certify that the foregoing is

a full, true and correct copy of the instrument(s)

herewith set out as same appear(s) of record in said

Court.

Witness my hand this 30th day of Nov. 1994

s/ Robert G. Esdale

Clerk, Supreme Court of Alabama

APPENDIX C — DECISION OF THE COURT OF CIVIL

APPEALS, STATE OF ALABAMA, MONTGOMERY

FILED JULY 29, 1994

OFFICE OF

"CLERK OF THE COURT OF CIVIL APPEALS

STATE OF ALABAMA

MONTGOMERY

RE: CV91-2347 AV93000054.00 July 29, 1994

E.L. Clark vs. Derrell O. Fancher, et al.

Appellant Appellee

You are hereby notified that the following indicated action

was taken in the above cause by the Court of Civil Appeals:

* * *

XXX Application for rehearing overruled. No opinion written

on rehearing.

* *’- *

s/ John H. Wilkerson, Jr.

Clerk, Court of Civil Appeals of Alabama

MAILING ADDRESS:

300 Dexter Avenue

Montgomery, Alabama 36104-3741

APPENDIX D — OPINION OF THE ALABAMA COURT

OF CIVIL APPEALS FILED JUNE 17, 1994

ALABAMA

COURT OF CIVILAPPEALS

OCTOBER TERM, 1993-94

AV93000054

E. L. Clark

Derrell O. Fancher, et al.

Appeal from Montgomery Circuit Court

(CV-91-2347)

ROBERTSON, Presiding Judge

This is an appeal from the judgment of the trial court

affirming the decision of the Alabama State Health Planning

Department Agency, which granted two Certificates of Need.

E. L. Clark leased buildings for the operation of nursing

homes to Albertville Nursing Home, Inc. (Albertville), in

Albertville, Alabama, and to Barfield Health Care, Inc.

(Barfield), in the Claysville-Guntersville area. In July 1985,

Albertville and Barfield each applied for a Certificate of Need

(CON) to construct new nursing home facilities and to relocate

their beds and services to the new facilities. In August 1985

Albertville and Barfield were each issued a CON, and in 1986

they moved into their new facilities. Thereafter, Clark applied to

Appendix D

the Alabama Department of Public Health for a license to operate

nursing homes in his facilities vacated by Albertville and

Barfield. The Department denied Clark’s request because he did

not have a CON authorization for any beds in either .

In February 1986, Clark filed a lawsuit in the United States

District Court for the Middle District of Alabama against

Albertville; Barfield; Derrell O. Fancher, the director of the State

Health Planning and Development Agency; the State Health

Planning and Development Agency (SHPDA); and numerous

state officials, alleging that all of the defendants had conspired to

deprive him of his property rights in the nursing homes in

Albertville and Guntersville, in violation of the due process

clause enforced by 42 U.S.C. § 1983. Clark subsequently

amended his complaint to allege that the defendants had entered

into a racketeering enterprise with the goal and effect of

depriving him of his property interest and in doing so had acted in

violation of the Racketeer Influenced and Corrupted

Organization Act (RICO), 18 U.S.C. §§ 1961-1968.

On April 9, 1991, United States District Judge Myron

Thompson entered a judgment in favor of Clark and against only

SHPDA on his § 1983 claim for its failure to give him notice of

the hearing regarding the transfer of beds and services from his

facilities to other facilities. Judge Thompson ordered SHPDA to

provide a hearing within 45 days with regard to the transfer of the

beds and services from Clark’s two nursing home facilities and to

reconsider de novo the transfer of the beds and services in light of

any evidence Clark might present.

On May 7, 1991, Judge Thompson entered an order

clarifying his decision, at the request of SHPDA, holding that if

Clark requested a “contested case” hearing then his case should

Appendix D

be heard by an administrative law judge and that otherwise his

case should be heard by the SHPDA CON Review Board.

On June 19, 20, 21, 25, 26, 27, and 28, 1991, hearings on the

applications of Albertville and Barfield for CONs were

conducted by Mark D. Wilkerson, the appointed administrative

law judge, pursuant to the Contested Case provisions of the

Alabama Administrative Procedure Act, § 41-22-1 et seq., Ala.

Code 1975. The record indicates that the administrative law judge

issued a recommended order to the SHPDA CON Review Board.

On August 26, 1991, the SHPDA CON Review Board held a

hearing on the CON applications of Albertville and Barfleld. On

that same day, the SHPDA CON Review Board issued a 60-page

final order, granting the CON applications of Albertville and

Barfield.

On September 26, 1991, Clark filed a request for a “fair

hearing review” with the SHPDA CON Review Board. On

October 26, 1991, Clark filed a petition for judicial review in the

Montgomery County Circuit Court, naming Derrell O. Fancher,

SHPDA, Albertville, and Barfield as defendants.

On November 12, 1991, Clark filed an emergency motion for

temporary and permanent injunctive relief and a motion for a

show cause hearing in the United States District Court for the

Middle District of Alabama. Clark requested that the United

States District Court enter a temporary restraining order against

SHPDA, prohibiting it from conducting any “fair hearings,” and

requested that the court enter permanent injunctive relief

declaring the SHPDA CON Review Board’s decision contrary to

that court’s prior orders. Clark also requested that the district

court remand the case to SHPDA and the administrative law

judge for them to define Clark’s CON rights. On November 14,

Appendix D

1992, Judge Thompson held a hearing on Clark’s emergency

motion. That same day, Judge Thompson entered an order

denying Clark’s emergency motion. Judge Thompson held that

SHPDA had fully and completely complied with the remedial

orders of the court.

On November 15, 1991, a hearing was held before the fair

hearing officer, Mark G. Montiel. On November 27, 1991, the fair

hearing officer issued a final order, approving and affirming the

SHPDA order, finding that SHPDA did not act in an arbitrary or

Capricious manner without reasonable justification for its

decision.

On December 6, 1991, SHPDA filed a motion to dismiss

Clark’s petition for judicial review on the ground that the SHPDA

order had not become a final decision until November 27, 1991,

and therefore, Clark had filed his petition for judicial review

prematurely. The record indicates that at the same time Clark also

filed a petition for judicial review in the Marshall County Circuit

Court.

On December 20, 1991, Clark refiled his notice of appeal

with the SHPDA CON Review Board. That same day, Clark

refiled his petition for judicial review in the Montgomery County

Circuit Court. On December 27, 1991, Albertville and Barfield

filed a motion to require Clark to select under which statute he

was appealing and to which court he was appealing. Albertville

and Barfield alleged that Clark had refiled a petition for judicial

review in both the Montgomery County Circuit Court and the

Marshall County Circuit Court pursuant to both the Alabama

Administrative Procedure Act (AAPA), § 41-22-20 et seq., Ala.

Code 1975, and the CON statute, § 22-21-260 et seq., Ala. Code

1975.

Appendix D

On January 3, 1992, Ozettia Gilliland, Ruby Kimberly,

Jessie Sims, Dora Stephens, James Thompson, Alma Walls, Nell

Boach, Opal Dobbins, Allie Garrett, Anna Hunt, Margaret

Johnston, Winifred McVeigh, Sara Smith, and Alta Mae Williams

(Residents), residents and patients in the nursing homes in

Albertville and Guntersville, filed a petition to intervene in the

case.

On January 8, 1992, the trial court entered an order,

dismissing Clark’s October 24, 1991, petition for judicial review

and his original notice of appeal. The trial court found that it had

jurisdiction of the cause pursuant “to the AAPA because Clark

was not an ‘applicant’ in the administrative proceeding.” On

January 17, ‘992, the trial court granted the Residents’ motion to

intervene.

On February 7, 1992, Clark’s Marshall County action was

transferred to the Montgomery County Circuit Court. On October

13, 1992, Clark filed a motion to consolidate his actions, which

was subsequently granted.

On June 18, 1993, the trial court entered a judgment,

affirming the decision of SHPDA. On July 16, 1993, Clark filed a

motion to alter, amend, or vacate the June 18, 1993, judgment. On

September 7, 1993, the trial court denied Clark’s motion to alter,

amend, or vacate its judgment.

Clark appeals, raising two issues; (1) whether the trial court

erred in affirming the decision of the SHPDA CON Review

Board and (2) whether the trial court erred in denying his motion

to alter, amend, or vacate its judgment of June 18, 1993.

Judicial review of an agency decision is limited by § 41-22-

20(k), Ala. Code 1975, which provides in part:

10a

Appendix D

“Except where judicial review is by trial

de novo, the agency order shall be taken as

prima facie just and reasonable and the court

shall not substitute its judgment for that of the

agency as to the weight of the evidence on

questions of fact, except where otherwise

authorized by statute. . . .”

Further, this court reviews the judgment of the trial court

“ ‘without any presumption of correctness, since [that] court was

in no better position to review the order of the Board than we

are.’ ” Nursing Home of Dothan, Inc. v. Alabama State Health

Planning & Development Agency, 542 So. 2d 935, 938 (Ala. Civ.

App. 1988), quoting Regional Dialysis v. Northeast Alabama

Kidney Clinic, Inc., 480 So. 2d 1226 (Ala. Civ. App.), cert.

denied, 480 So. 2d 1229 (Ala. 1985). Areviewing court may not

substitute its judgment as to the weight of the evidence on

questions of fact, and the agency’s decision is to be upheld unless

it is unreasonable, arbitrary, or capricious. Montgomery

Rehabilitation Hospital, Inc. v. State Health Planning Agency,

610 So. 2d 403 (Ala. Civ. App. 1992).

Clark argues that the decisions of the SHPDA CON Review

Board and the fair hearing officer were arbitrary and capricious.

Clark claims that the SHPDA CON Review Board, the fair

hearing officer, and the trial court ignored or misconstrued

significant factual information.

The record reveals that before 1976 Clark operated the

nursing home in the Albertville facility and that his license to

operate the nursing home was revoked; however, Clark’s license

was later reinstated. The record also reveals that in 1976 the State

intended to revoke Clark’s license again and to close his nursing

lla

Appendix D

home because of what it found to be unsanitary, unsafe,

unacceptable, and intolerable conditions. The record further

reveals that in an attempt to keep the facility open, Clark agreed

not to operate the nursing home business and to lease his building

to Albertville.

Further, the record reveals that Clark constructed a nursing

home facility in the Claysville-Guntersville area after being

denied an “Assurance of Need” certificate by the Alabama

Committee of Public Health. The record also reveals that in July

1978, before the completion of the nursing home facility, Clark

entered into a lease of the facility with Claysville-Guntersville

Nursing Home, Inc. The record reflects that Clark represented to

Claysville-Guntersville Nursing Home, Inc., that he had an

Assurance Of Need (AON) certificate on the facility; this

representation subsequently led to a lawsuit and a settlement. The

record also reflects that in August 1979 Brooks Barfield

purchased all of the stock of Claysville-Guntersville Nursing

Home, Inc. The record further reflects that Brooks Barfield

incorporated Barfield Health Care, Inc., to operate and provide

nursing home services at the Claysville-Guntersville facility.

The record reflects that in 1985 Albertville and Barfield each

filed an emergency application for a CON for the construction of

a new facility and the relocation of the same number of beds that

they had been operating. In support of their applications,

Albertville and Barfield listed numerous alleged deficiencies in

the current buildings they were leasing from Clark. Section 22-

21-275(14), Ala. Code 1975, provides that the decision of the fair

hearing officer “shall be considered the final decision of the state

agency” for the purposes of judicial review. See also Methodist

Homes for the Aging v. Stewart, 594 So. 2d 161 (Ala. Civ. App.

1992). The fair hearing officer adopted by reference the findings

12a

Appendix D

of fact and conclusion of law in the SHPA CON Review Board’s

order of August 26, 1991. The fair hearing officer found that the

applications of Albertville and Barfield met “the required

findings of § 22-21-266, Ala. Code 1975, with respect to in-

patient facilities or services and that the applications [were]

consistent with each of the applicable criteria and standards set

forth in Chapter 6 of the SHPDA Rules” and the appropriate State

plan. The Fair Hearing officer also found that SHPDA had not

acted in an arbitrary or capricious manner and that it did not abuse

its discretion in deciding that the applications of Albertville and

Barfield should be granted.

The SHPDA CON Review Board record contains almost

1930 pages of transcribed testimony and 500 exhibits. There was

extensive testimony regarding the condition of the nursing home

facilities in 1985, testimony regarding Clark’s refusal to repair or

correct structural defects and conditions affecting the health and

safety of the residents of the nursing homes, and the estimated

thousands of dollars that it would have cost for the necessary

repairs.

The SHPDA CON Review Board found that the correction

of the deficient conditions was primarily the responsibility of

Clark, and that he was unwilling to make the repairs and

improvements to protect the health and safety of the residents of

the facilities. The SHPDA CON Review Board further found that

the deficient conditions “were not reasonably ‘foreseeable’

within the context of the emergency review provision and

constituted [an] ‘emergency’ for the purposes of the CON statute,

the 1985 SHPDA Rules and Regulations and the executive

moratorium.” The SHPDA CON Review Board held that

Albertville and Barfield were the holders of a superior

“grandfathered” CON interest in the operation of the nursing

13a

Appendix D

home beds and the nursing home services located in, and

provided by, the nursing home facilities owned by Clark before

and after July 30, 1979.

We find that the SHPDA CON Review Board acted within its

authority to grant CONs to Albertville and Barfield and thai its

decision and the decision of the fair hearing officer are supported

by substantial evidence. See Nursing Home of Dothan, supra.

Therefore, the trial court did not abuse its discretion by affirming

the decision of the SHPDA CON Review Board or by denying

Clark’s motion to alter, amend, or vacate.

The judgment of the trial court is affirmed.

AFFIRMED.

Thigpen and Yates, JJ., concur

I, John H. Wilkerson, Jr., Clerk of the Court of Civil

Appeals of Alabama, do hereby certify that the foregoing

is a full, true and correct copy of the instrument(s)

herewith set out as same appears of record in said court.

Witness my hand this 17th day of June, 1994.

s/ John H. Wilkerson, Jr.

Clerk, Court of Civil Appeals of Alabama

l4a

APPENDIX E— FINAL DECREE FILED JUNE 18, 1993

IN THE CIRCUIT COURT OF

MONTGOMERY COUNTY, ALABAMA

Civil Action # CV-91-2347G

E. L. CLARK

Plaintiff

vs.

DERRELL O. FANCHER, et als

Defendants

FINAL DECREE

E. L. Clark, pursuant to provisions of the Alabama

Administrative Procedure Act, CON Law, and State Health

Planning Agency Rules and Regulations, filed in the

Montgomery County Circuit Court a petition for review of the

administrative action of SHPA adverse to the interests of the

petitioner. The petition was contested by the Agency and the

beneficiaries of the favorable ruling, Albertville Nursing Home

and Barfield Health Care.

I have carefully reviewed the voluminous record in this

cause together with the briefs, counter briefs, memoranda, letters,

and reply letters of the very able attorneys involved.

It is my opinion that there was substantial evidence to

support the ruling of the State Health Planning Agency and the -

Board correctly applied the law to the facts.

15a

Appendix E

The decision of the State Health Planning Agency is due to

be and is hereby affirmed.

Done this 18th day of June, 1993.

s/ William I. Byrd

William I. Byrd

Circuit Judge

176 Bay View Drive

Daphne, Alabama 36526

205-626-6857

16a

APPENDIX F — ORDER OF THE STATE HEALTH

PLANNING AND DEVELOPMENT AGENCY OF THE

STATE OF ALABAMA DATED NOVEMBER 27, 1991

BEFORE THE STATE HEALTH PLANNING AND

DEVELPMENT AGENCY OF THE STATE OF ALABAMA

ALBERTVILLE NURSING HOME, INC.

Albertville, Alabama Project No. AL-5046-E

BARFIED HEALTH CARE, INC.

Guntersville, Alabama Project No. AL-5047-E

FINAL ORDER OF FAIR HEARING OFFICER

This cause came on for hearing on November 15, 1991,

pursuant to request for fair hearing filed by the requestor, E.L.

Clark. By agreement of the parties, the fair hearing was

conducted on the Record and the argument of counsel for the

parties. The undersigned Fair Hearing Officer having now

received and carefully considered all of the relevant testimony

and evidence in the Record of the contested case proceedings and

the public hearing before the State Health Planning and

Development Agency Certificate of Need Review Board

(“SPDA”), along with the arguments from counsel for the parties,

and being of the opinion that this Final Order should be issued, it

is, accordingly, the Final Order of the Fair Hearing Officer in

these causes as follows:

FINDINGS OF FACT AND CONCUSIONS OF AW

The Findings of Fact and Conclusions of Law contained in

the Final Order On Contested Case Proceeding issued by SPDA

on August 26, 1991 (SHPDA Order”), are hereby adopted by

17a

Appendix F

reference as the Findings of Fact and Conclusions of Law of the

Fair Hearing Officer hereby found and concluded that said

Findings of Fact and Conclusions of Law are supported by the

Record and that they are correct and proper under the relevant

testimony and evidence in the Record.

It is further found, concluded and ordered that the

Applications herein meet the required findings of § 22-21-266,

Ala. Code (1975), with respect to in-patient facilities or services

and that the applications are consistent with each of the

applicable criteria and standards set forth in Chapter 6 of the

SHPDA Rules and that the applications are consistent with the

appropriate State Plan. SHPDA did not act in an arbitrary or

capricious manner without a reasonable justification for its

decision, and its decision was not absent fixed standards against

which the applications were measured. SHPDA did not abuse its

dicretion in deciding that the Albertville and Barfield

applications should be granted. SHPDA did not materially fail to

follow review procedures set out in the SHPDArules. There is no

error in the SHPDA Final Order.

Accordingly, IT IS ORDERED that the SHPDA Order be

and the same is hereby APPROVED AND AFFIRMED.

It is further ORDERED that Project No. AL-5046-E,

Albertville Nursing Home, Inc. (Albertville) is hereby

GRANTED and that Project No. AL-5047-E, Barfield Health

Care, Inc. (Barfield) is hereby GRANTED. The Emergency

Applications for Relocation Certificates of Need filed by

Albertville and Barfield are GRANTED, and said Certificates of

Need shall be issued by SHPDA to Albertville and Barfield in

accordance with Rule 410-1-8-.27 as soon as practicable after the

date of this Final Order.

18a

Appendix F

DONE this the 27th day of November, 1991.

s/ MarkG. Montiel

MARK G. MONTIEL

FAIR HEARING OFFICER

19a

APPENDIX G — ORDER OF THE STATE HEALTH

PLANNING AGENCY DATED AUGUST 26, 1991

BEFORE THE STATE HEALTH PLANNING AGENCY

OF THE STATE OF ALABAMA

CERTIFICATE OF NEED REVIEW BOARD

IN RE:

ALBERTVILLE NURSING HOME, INC.

Albertville, Alabama PROJECT NO. AL-5046-E

BARFIELD HEALTHCARE, INC.

Guntersville, Alabema | PROJECT NO. AL-5047-E

FINAL ORDER ON CONTESTED CASE PROCEEDING

THIS CAUSE having come on for hearing pursuant to the

remand Order of the U.S. District Court in the case of E.L. Clark,

et al. v. Derrill Crowe, et al, Civ. Action No. 86-T-139-N (N.D.

Ala) and the “contested case” provisions of the Alabama

Administrative Procedure Act, §§41-22-1 et seg. Code of

Alabama 1975 (“the AAPA”), and the Certificate of Need Review

Board having first received and carefully considered all of the

relevant testimony and evidence from the parties, along with

arguments from the parties or their counsel of record, not being of

the opinion that this Final Order should be issued by the

Certificate of Need Review Board (“the Board”) of the State

Health Planning and Development Agency (SHPDA), it is,

accordingly, the

FINAL ORDER of the Board in this contested case, and the

Findings of Fact and Conclusions of Law of the Board as set out

herein.

20a

Appendix G

The Board, having first considered the contents of the

official SHPDA files dealing with each of the above referenced

Certificate of Need Applications; the transcript of the contested

case proceedings; the Recommended Order of the Hearing

Officer Mark D. Wilkerson. and the proposed Orders of E.L.

Clark. Albertville Nursing Home, Barfield Healthcare, Inc., and

the Intervenors, and the briefs and all arguments that may have

been filed or presented by any adversely affected party, and oral

arguments presented at the Board meeting on August 26, 1991,

does hereby adopt and issue this Final Order in this contested

case. This Final Order is issued after the members of the Board

voted unanimously on the content of and, the disposition affected

by, this Final Order on August 26, 1991. Moreover, this Final

Order is made and issued in strict conformity and compliance

with the provisions of Ala. Code §§41-22-15 and 41-22-16

(1975); the Alabama “Certificate of Need Law”, Ala. Code §22-

21-260 et. seq (1975) and the SHPDA Rules and Regulations.

A. Introduction

On July 29, 1985, Albertville Nursing Home, Inc.

(“Albertville”), through letter from its counsel, requested that the

CON Board consider an emergency application on its behalf to

construct a new nursing home facility with a complement of 133

beds in Albertville, Alabama. In its letter, Albertville indicates

that it wishes to operate “the same 133 beds it has operated in the

past”. A projected cost of two million five hundred thousand

dollars ($2,500,000) was given for the proposed facility. In

support for its request for emergency consideration, the letter

cites a long list of alleged deficiencies in the current building

utilized by Albertville, which was owned by Mr. E.L. Clark

(“Clark”).

2la

Appendix G

On July 23, 1985, Barfield Healthcare, Inc., (“Barfield”),

through letter from its counsel, requested that the CON Board

consider an emergency application for the constvuction of a new

nursing home facility with a complement of 103 beds in Marshall

County, Alabama. In its letter seeing consideration of an

emergency CON, Barfield indicates that it wishes to “operate the

same 103 beds it had operated in the past”. A projected cost of

one million nine hundred thousand dollars ($1,900,000) was

given for the proposed facility. In support of its request for

emergency consideration, the letter cites a long list of alleged

deficiencies in the current building being utilized by Barfield,

which was also owned by Clark.

The aforementioned applications were ultimately granted by

the CON Board on October 16, 1985. The circumstances

surrounding the filing, consideration and approval of the

applications has served as the basis for protracted litigation

involving Albertville, Barfield, Clark and other parties. E.L.

Clark. et. al. v. Derrill Crowe, et al., Civ. Action No. 86-T-139-N

(N.D. Ala.) This litigation is described in greater detail below. As

a result of this litigation, the United States District Court for the

Middle District of Alabama issued an Order dated April 9, 1991,

essentially remanding the applications to the CON Board for a de

novo hearing, almost five years after the applications were

originally filed. Pursuant to the April 9, 1991 Order, the parties

agreed that the aforementioned applications should be heard on a

consolidated basis and should be conducted pursuant to the

“contested case” provisions of the Alabama Administrative

Procedure Act, Ala. Code §§42-22-1 et seq. (1975) (the

“AAPA”). It was further determined and agreed by the parties

that the duly appointed hearing officer was an appropriate person

to conduct the hearing and to therefore issue a recommended

order to the Board.

22a

Appendix G

Hearings were conducted before the hearing officer on June

19, 20, 21, 25, 26, 27 and 28, 1991 at the SHPDA Conference

Room at 312 Montgomery Street, Montgomery, Alabama.’ At the

hearing, the following parties appeared in person or through their

counsel: Albertville and its President, Ms. Audrey Cole (“Cole”);

Barfield and its President, Brooks Barfield; various intervenor

patients currently residing in facilities operated by Albertville

and Barfield; E.L. Clark; and intervenor Resolution Trust

Corporation (“RTC”). Twenty-four witnesses testified in the

hearing and over five hundred (500) exhibits were submitted by

the parties, some of which were not admitted.”

At the conclusion of the hearing, the parties agreed that this

matter would be submitted to the Board for initial consideration

at it regular August meeting. The parties stipulated to a procedure

by which briefs in the form of proposed orders would be

submitted to the hearing officer by July 17, 1991 and the hearing

officer would then issue a recommended order to the Board for

consideration at the August meeting. In light of the fact that the

proposed orders submitted by each party were submitted to the

Board contemporaneously with the hearing officer’s

recommended order, the parties also agreed to waive their right to

the filing of any exceptions to the recommended order. However,

Clark and RTC were nevertheless allowed to file written

1. Prior to the hearing, the hearing officer issued a Notice of Hearing,

Amended Notice of Hearing and a Prehearing Order which are all attached hereto as

Appendix A, B, andC.

2. In each instance in which exhibits were excluded, the sponsoring party

was permitted to make a showing based on the proffered exhibits, in accordance

with the AAPA. In addition, where testimony was excluded by the hearing officer,

the parties were given an opportunity to make a showing summarizing the excluded

testimony.

23a

Appendix G

responses by 5:00 p.m. Wednesday, August 21, 1991, which

responses were made a part of the record.

In its consideration of the aforementioned applications, the

CONRB has carefully examined, among other things, the federal

court orders, applicable federal and state law and regulations, the

relationship of the parties and the conditions at the Albertville

and Guntersville facilities as reflected in the testimony and

evidence of record. The Findings of Fact and Conclusions of Law

regarding the aforementioned applications are set out below.

B. Federal Court Order

This case is being heard under the auspices of an Order dated

April 9, 1991 by United States District Judge Myron Thompson

in the case of E.L. Clark. et al. v Derrill Crowe, et al., Civil Action

No. 86-T-139-N. These underlying legal proceedings and the

findings of Judge Thompson have a direct bearing on many of the

issues before the CON Board.

In February of 1986, Clark filed a lawsuit in Federal District

Court, claiming that certain state officials, acting together with

private individuals, including Barfield and Cole, engaged in a

conspiracy to deprive him of certain property rights related to the

Albertville and Guntersville nursing homes. (April 9, 1991

Order, p. 7) The Complaint was later amended to challenge the

adequacy of the emergency procedures by which the CONs had

been acquired and to allege that SHPDA’s award of the bed

authority in the respective proceedings was arbitrary and

capricious. In addition, Clark claimed that the defendants’ acts

resulted in a civil violation of the Racketeer Influenced and

Corrupted Organizations Act (“RICO”), 18 U.S.C.A. §§1961-

1968 (West 1984 and Supp. 1990).

24a

Appendix G

In the April 9, 1991 Order, the court granted judgement in

favor of Clark in regard to his 1983 claim, finding that the failure

to give Clark notice of the proposed transfer of beds and services

from the nursing homes in 1985 “violated the due process clause

of the 14th Amendment to the U.S. Constitution as of course 42

U.S.C. Section 1983”. Accordingly, the court enjoined the

defendants, “their officers, agents, servants, employees and

those persons in active concert or participation with them who

receive actual notice of this order by personal service or

otherwise” from failing to provide Clark with a new

administrative hearing in regard to the above applications in

which SHPDA was ordered to “reconsider de novo the transfer of

the beds and services in light of any appropriate comments and

evidence plaintiff Clark might present. . .”. (April 9, 1991 Order,

p. 17) The court ruled in favor of the defendants in regard to

Clark’s allegations that SHPDA’s decision to grant the

applications was “arbitrary and capricious” , holding that it did

not agree with Clark that, upon remand, the CON Board “could

find in his favor only”. (April 9, 1991 Order, p. 16) The April 9,

1991 Order did not address Clark’s RICO claims. The court also

denied certain claims of plaintiff-intervenor City Federal Savings

& Loan Association (later replaced in the litigation by RTC),

finding that it had no property interest in the CON authority

associated with the Albertville and Guntersville facilities.

The April 9, 1991 Order was the subject of subsequent

reconsideration motions filed on behalf of Clark and RTC. The

Clark motion sought an order restricting the evidence that may be

considered by the CON Board for purposes of this de novo

hearing. The court denied the motion, stating:

“The State Health Planning and

25a

Appendix G

Development Agency (SHPDA) may receive

any evidence necessary for its decision, and

this evidence may come from any source,

including but not limited to plaintiff Clark

and defendants Cole and Barfield. The issue

of what evidence the agency may receive is a

matter for the agency and not this court.

However, Cole and Barfield should not be

advantaged in any way by the fact that they

had use of the ‘beds’ since the agency's

original decision allowing the transfer of the

beds.” :

In regard to RTC’s motion, the court reaffirmed its prior

determination that RTC did not hold a property interest in the bed

authority, despite the mortgage and assignment of the leases,

citing the non-assignability of CONs under Ala. Code § 22-21-

270 (e)(1975).

The parties differ on the limitations placed on the CON

Board by virtue of the aforementioned orders and have

submitted, both orally and in writing, various motions seeking to

limit or expand the evidence that may be considered by the CON

Board in the current de novo hearing. In response to various

motions filed by the parties, the hearing officer determined that

the April 9, Order, read in context with Alabama law and due

process considerations, requires the CON Board to apply those

portions of the old 1985 SHPDA Rules and Regulations which

affect the substantive rights of the parties, while the current

SHPDA Rules and Regulations would be used in all other

instances. In addition, the hearing officer ruled that, as a general

rule, no testimony and evidence would be admitted concerning

the operations of the respective applicants’ facilities since the

26a

Appendix G

date of 1985 decisions and the subsequent construction of the

new facilities.’

The District Court’s discussion of the property interest held

by Clark in the CONSs is of critical importance to the disposition

of the present applications, in that it bears directly on the question

of who was the holder of the CONs at the time the application

were originally filed. In its decision, the court held that the

interest of Clark (as well as the applicants) in the respective

CONSs was a result of the fact that the 1979 CON law applied only

to new healthcare facilities and services, with persons already

offering “facilities and services” as the date of the CON law

having equivalent, “grandfathered” rights. Thus, by virtue of

their “grandfathered” status, the nursing home facilities enjoyed

all the rights and privileges of a “CON” even though a written

CON was not required to be issued by SHPD. The court then

addressed whether Clark, as opposed to the respective applicants,

held the grandfathered interest in the Albertville and Guntersville

facilities. In addressing this issue, the court stated in part:

“SHPDA argues that Clark was a simple

landlord, who had at most only a property

interest in the physical buildings at

Albertville and Guntersville. The credible

3. Incertain instances, the hearing officer allowed the applicants to present

limited evidence regarding the new facilities in response to cross-examination by

Clark's counsel. During the hearing, the hearing officer also allowed testimony

concerning inspections of the Clark facilities which occurred during the general

time period in which the applications were considered, even if slightly after the

October, 1985 decision date, on the basis that there was no way to know exactly

when the hearing would have taken place had Clark actually been given notice in

1985 and that the applicants would have been able to obtain and present expert

testimony if a contested proceeding had occurred.

27a

Appendix G

evidence before the court does not fully

support this contention. The court agrees

with Clay H. Dean, the drafter of the CON

Legislation and a former director of SHPDA,

that Clark leased more to Cole and Barfield

than just physical plants. He leased nursing

homes operations to them. Clark and his

tenants agree that his tenants would continue

to operate and administer nursing homes in

the two facilities. An expressed condition in

the lease contracts was, therefore, that the

tenants would take over nursing home

operations. Moreover, in one of the leases

entered into by the parties, Clark leased a

specific number of “beds,” and calculated

the rent by the number of beds in use in the

building. This lease further provided that,

should the tenant expand the nursing home

beds in that facility, there would be a

proportional increase in rent. The court

agrees with Dean and finds from the evidence

that Clark had a sufficient interest in the

operation of the two facilities to enjoy a

“grandfather status” when the CON statute

went into effect in 1979 (footnote omitted).

The court cannot say that his status was

exclusive, however. Cole and Barfield, as

operators of the two nursing homes, also had

an expectation in continued operation of the

two facilities when the CON law went into

effect (footnote omitted).

Clark asks that the court determine who has

28a

Appendix G

the superior interest. The court declines the

invitation. The determination turns on more

than just legal principles. Whether a lessor or

lessee of a nursing home operation should be

considered as the sujierior holder of a

grandfathered operation is more than likely

also a matter of policy. Indeed, there was

conflicting testimony before the court as to

which result, in general and in this case

specifically, would better further the public

interests of the CON statute. SHPDA should

resolve this issue, not the court.”

(April 9, 1991 Order, p. 13-15)

Thus, the District Court gave the CON Board wide latitude to

determine whether Clark, as opposed to the applicants, holds the

“superior interest” in the respective CON interests associated

with the Albertville and Guntersville facilities, recognizing that

the decision involves difficult legal and public policy

considerations.

C. Alabama Law and the “Grandfathered” CON Rights

of the Parties.

In a nutshell, Clark argues that the interests of Barfield and

Cole in the respective “CONs” were, at most, limited to

“leasehold rights”, acquired by virtue of lease agreements with

the owner, Clark. Thus, Clark argues, whatever interests were

held by Cole and Barfield would expire with the termination of

the lease, with Clark retaining the “permanent” grandfathered

authority. Clark asserts that it has been the historic practice of

SHPDA to recognize the:

29a

Appendix G

“owners of healthcare facilities, the

construction and operation of which predated

the advent of the Alabama CON Review

Program as the persons or entities having the

permanent interest in and to the facilities’

“bed authority” — not the mere operators of

the facilities.”

Clark proposed order, p. 21.

Cole and Barfield dispute Clarks’ assertion that SHPDA has

recognized the facility owners as holders of the grandfathered

CONS, stating:

“Throughout the years SHPDA has always

dealt with the applicants and licensed

operators of healthcare facilities and

services — never with real estate owners who

were not also operators of healthcare

facilities (Tr. 706, 726, 727, 752).”

Albertville and Barfield proposed order, p. 32. Additionally, the

applicants contend that the Board should look at the “totality” of

the circumstances surrounding the operation of the facilities at

the time the CON statute was enacted to determine whether the

lessor or lessee has the “superior” grandfathered interest.

Albertville and Barfield point to the history of the respective

nursing homes, the issuance of Assurance of Need certificates

(“AONs”) (and, in one case, a CON) and actions by Clark

allegedly “relinquishing” his interest in the provision of

healthcare ai the facilities prior to 1979 in support of their

position that they hold such “superior” interests.

30a

Appendix G

An examination of the record of this case, past

correspondence and orders issued by the CON Board and

SHPDA and the contradictory testimony of prior and present

officials at the agency reflects the inherent difficulty in reaching a

resolution as to whether, as a general rule, the “owners” or

“lessee-operators” of healthcare facilities obtained superior

“grandfathered” CON interests in 1979. As is shown below, it is

clear that SHPDA’s historic “policy” in regard to this issue, if one

ever existed, was subject to varying interpretations and was, in

some respects, self-contradictory.

The parties presented several witnesses who testified as to

the prior policy and practice of SHPDA in regard to

“grandfathered” facilities. Mr. Alan Koch, who served as the

initial Executive Director of SHPDA in 1979, testified on behalf

of the applicants. Mr. Koch explained that the Section 112 (AON)

program dealt strictly with Medicare and Medicaid

reimbursement of capital expenditures. (Tr. 583) He agreed with

other witnesses that the AON program was similar to the

subsequent CON program in that the issuance of an AON was tied

to the established need for health facilities and services, as

reflected in what was then referred to as the State Comprehensive

Health Plan (see also, deposition of Clay H. Dean and related

exhibits, Clark ex. 282 and 283). The AON program became

effective in Alabama in September of 1973. Healthcare facilities

and services in existence prior to implementation of the program

were “grandfathered” for Section 1122 purposes. (Clark ex. 282,

p. 32)

The significant difference between the AON and CON

programs was in the sanctions involved. (See testimony of C.

Stewart, Tr. 1712; Koch, Tr. 583; Clark Ex. 282, p. 32) The AON

program was concerned only with capital reimbursement and the

3la

Appendix G

withholding of such reimbursement was the only penalty for non-

compliance. As reflected in the testimony of Koch, Stewart and

Dean, prior to the CON statute any person could operate a nursing

home in Alabama, as long as licensure standards were met. In

contrast, with implementation of the CON statute, no person

could operate a nursing home in Alabama without receiving a

CON unless he fell under one of two narrow exceptions‘: (1) he

held a valid AON as of the effective date of the CON program; or

(2) he was operating a healthcare facility which had been

constructed and was operating as of the effective date of the CON

program in 1979.

In the case of the Guntersville facility, Koch pointed out that

neither Clark nor Barfield held an AON at the time of the effective

date of the CON law. Accordingly, Koch testified that as

Executive Director he initially refused to agree to a request by

Barfield for a written CON, although he informed Barfield that he

could continue to operate, without reimbursement, due to his

“grandfathered” status. (Tr. 585, 96) He testified that Barfield

then obtained an Attorney General opinion, stating that he was

eligible to receive a CON. (See Clark Ex. 146; discussed below;

Tr. 586) Based on this opinion, a CON was issued to Claysville-

Guntersville Nursing Home, Inc. on August 18, 1980.

Nevertheless, Medicaid reimbursement was still not granted,

prompting Barfield to ultimately create a new company, Barfield

Healthcare, Inc., to operate as a sublessee with Claysville-

4. Anursing home must still receive a license from the Department of Public

Health to operate.

5. In regard to the conversion of AONs tc CONs under Ala. Code § 22-21-

265 (1975), state law required the holder of an AON to file for an application for a

replacement CON within 90 days after July 30, 1979. Thus, the automatic

“conversion” of AONs to CONS is not applicable to the Albertville situation.

32a

Appendix G

Guntersville Nursing Home, Inc. The creation of the new

corporation apparently resulted in Medicaid reimbursement.

Mr. Koch testified that it was his view that Clark’s lease of

the Guntersville facility to Claysville-Guntersville Nursing

Home, Inc., provided for the lease of only the building, not any

nursing home rights or authority, in that at the time of execution

of the lease anyone could construct and operate a nursing home,

as long as licensure requirements were met.* Thus, according to

Koch, Clark held no special nursing home “authority” that

Claysville-Guntersville Nursing Home, Inc., Barfield, or anyone

else, could utilize through a lease agreement. In light of the fact

that there was no pre-existing authority, it was Koch’s opinion

that SHPDA was free to apply equitable principles in determining

who had the “grandfathered” interest. Mr. Koch was of the view

that the CON status logically and equitably attached to the beds,

therefore, the operator of the beds, who he described as Barfield,

received the “grandfathered” interest.

Ms. Peggy Schmitz also testified regarding the policies and

practices of SHPDA. Ms. Schmitz is an Assistant Attorney

General who served from 1984 to 1987 as SHPDA counsel. She

questioned the viability of the grandfather clause in the 1979

SHPDA Rules and Regulations due to what she considered to be a

lack of specific legislative authorization for such clause. (Tr. 461,

2) Nevertheless, she testified that the Attorney General’s office

had advised SHPDA that if a facility was operating in 1979 when

the law became effective it could continue to operate without

6. Mr. Koch’s testimony in this regard is contrary to the finding of the

District Court’s April 9, 1991 Order, p. 14. The CON Board has not given any

weight to this or any other “legal” opinion expressed by Koch or others, however,

and has considered their testimony only for purposes of determining the policy and

practices of SHPDA and the history of the Albertville and Guntersville operations.

33a

Appendix G

obtaining a written CON. (Tr. 474) In regard to home health

agencies, the CON Board adopted a policy that such agencies

could continue to operate in the areas they were operating as of

the effective date of the CON law, however, they would require a

CON for any expansion into other areas of the state. (Tr. 474)

Ms. Schmitz testified that in her experience with relocation

applications, SHPDA traditionally looked only at the lessee —

operators of healthcare facilities as holding the “grandfathered”

interest. She stated that during her tenure at SHPDA, she was not

aware of any requirement or practice that the agency provide

notice of such applications to the landlords of such lessee-

operator.’

The testimony of Eugene Watson was generally supportive

of that of the testimony of Mr. Koch and Ms. Schmitz in regard to

the prior practices and policies of SHPDA in this area. Mr.

Watson was employed as a Special Assistant Attorney General

who served as “agency counsel” to SHPDA from January, 1984

through October, 1986. He worked cooperatively with Ms.

Schmitz in that capacity, handling much of the administrative

legal functions at the agency. (Tr. 901) One of his primary

functions was to update the 1979 SHPDA Rules and Regulations

in light of the subsequent adoption of the AAPA, the 1982

amendments to the CON law, and Public Law 96-79 on a federal

level. (Tr. 903). The revised SHPDA Rules and Regulations

became effective on March 21, 1985. (Tr. 905)

Mr. Watson agreed with Ms. Schmitz that the original CON

statute did not contain a “grandfather clause in the classic

7. Apparently, the issue only arose in regard to home health agencies, for

which no AONs were issued and which involved county territorial authority, as

opposed to traditional “bed authority”.

34a

Appendix G

legislative sense”. He also indicated that it was his practice to

consider the lessees-operator the holder of any grandfathered

interest that might exist. However, he is aware of no instance

prior to adoption of the new rules in March of 1985 where any

entity, other than home health agencies, claimed “grandfathered”

rights. (Tr. 909, 910)®

According to Mr. Watson, other health related governmental

agencies also looked at the operators, as opposed to the owners,

of healthcare facilities as the responsible parties. As an example,

he cited the fact that the “Directory of Home Healthcare

Facilities” published by the Alabama Department of Public

Health listed Claysville-Guntersville Nursing Home, Inc., as the

operator and the licensee at the Guntersville site, and Albertville

Nursing Home, iic., as the operator and licensee of the

Albertville site in 1979. (Tr. 916) Beginning in 1982, the

directory listed Barfield Healthcare, Inc., as the operator and

licensee at Guntersville. (Tr. 916)

Clark presented the deposition testimony of Clay H. Dean,

concerning the historic practices of SHPDA in this area (Clark

ex. 282) Mr. Dean was director of the State Health Planning and

Developing Agency from 1977 through 1979, when it was still a

part of the State Health Department. He retired the day before

SHPDA became an independent agency. (Clark Ex. 282, p. 13)

He assisted in drafting the original CON law. (Clark Ex. 282, p.

24) He testified that the CON law took effect on July 31, 1979,

with the implementation regulations becoming effective on

November 1, 1979.

8. Watson pointed out that “home health services” are included in the

definition of “healthcare facility” in Ala. Code § 22-21-260(1975), even though by

definition such operations do not involve “beds”. (Tr. 906, 949)

35a

Appendix G

Mr. Dean testified that Clark, by virtue of his ownership of

the Guntersville and Albertville facility, could continue to

“offer”... “whatever services [he] had in existence on that day”

just like every other healthcare facility, such as the “University of

Alabama Hospital, Baptist Memorial or Baptist Hospital” . (Tr.

102) He makes a distinction between “operating” a healthcare

facility and “offering” a healthcare service, stating that the CON

statute does not apply to the operation of a facility, but simply

grants aright to “prepare yourself to offer” healthcare services.

The State Department of Public Health, according to Mr. Dean, is

the sole agency in Alabama that can authorize the actual

operation of a healthcare facility. He further testified that, in his

view, there were two types of “grandfathered” CON authority

associated with the Albertville and Guntersville facilities. The

first was Mr. Clark’s original “grandfathered” status as the

owner of the property and, second, Albertville and Barfield’s

“grandfathered” . . . “leasehold authority”. (Tr. 105,106)

While each of the present and former state officials who

testified on behalf of the parties are recognized experts in their

fields, their testimony ultimately served to underline the fact that

SHPDA never developed a firm policy regarding the recognition

of “grandfathered” CON rights. In all other relocation

applications cited by the parties, SHPDA was provided notice of

the concurrence or acceptance of the owner of the facility to the

relocation or transfer request.’ Alan Koch, while stating that as a

matter of policy the lessee-operator of a nursing home as of the

effective date of the CON program in 1979 obtained the

“grandfathered” CON rights, also testified that, upon the

9. See application of Lamar Convalescent Center. (Clark Exhibits 80 and 90;

T. 763-765); and correspondence regarding purchase of John Andrew Community

Hospital in Tuskegee. Alabama (Clark Exhibit 121)

36a

Appendix G

expiration of the lease, the CON rights would transfer to a

subsequent lessee by virtue of his lease with the lessor,

notwithstanding his testimony that the original operator-lessee

held the grandfathered rights and no CON interest may be

transferred or assigned without CON Board approval. (Tr. 625-

627) The inconsistency of such a policy is apparent.

It is equally clear, however, that SHPDA has not consistently

recognized the true “owners” of healthcare facilities as the

recipients of “grandfathered” rights."° The Board takes

administrative notice that a great many healthcare facilities in

Alabama are actually owned by medical clinic boards and

authorities, a fact that was recognized by Mr. Dean. There is no

record of SHPDA or the CON Board ever receiving the consent of

such authorities for the relocation or transfer of CON bed

authority prior to 1985. When questioned about this apparent

contradiction, Mr. Stewart testified that it had been the agencies

practice to view medical clinic boards as simply a financing

vehicle. (Tr. 1795)

Based on the testimony of past and present SHPDA officers,

coupled with the records of prior agency actions, the CON Board

finds that there has been no consistent, historic practice regarding

whether the “owners” as opposed to “lessee-operators” of

healthcare facilities received the “superior” “grandfathered”

interests as defined in the April 9, 1991 Order of the District

Court. The CON Board agrees with the applicants that this

determination must be made on a case-by-case basis, considering

the “totality” of circumstances.

10. When questioned about the situation involving Dalraida Nursing Home,

Charlie Stewart was unable to testify whether the true owner of the Dalraida facility

was Mr. Easterwood or the “Medical Clinic Board of the City of Montgomery”. (Tr.

1788)

37a

Appendix G

In regard to the Albertville facility, the circumstances

leading up to the lease of the facility by Clark to Albertville

Nursing Home, Inc., and Audrey B. Cole on December 8, 1976 is

chronicled on pages twenty through twenty-seven below.

Incorporating the findings contained therein, the CON Board is

of the opinion and finds that it was the intention of the parties for

Mr. Clark to discontinue holding himself out to be in the nursing

home business, particularly in regard to governmental agencies,

and for Albertville and its President, Cole to assume

responsibility for the various terms and conditions upon which

such nursing home services must be provided, notwithstanding

that the rent was tied to the number of nursing home beds and that

the lease required the lessees to comply with all state and federal

laws and regulations and to provide the owner with a copy of all

inspection reports. As such, it is the opinion of the CON Board

that Albertville held the “superior” “grandfathered” interest

which, under state law and the then effective SHPDA Rules and

Regulations, gave it the right to seek a CON authorizing the

transfer or relocation of such beds.

In regard to the Guntersville facility, the circumstances

leading up to the lease of the Guntersville facility by Clark to

Claysville-Guntersville Nursing Home, Inc. is found on pages

thirty-eight through fifty below. Incorporating the findings

contained therein, the CON Board is of the opinion and finds that

Claysville-Guntersville Nursing Home, Inc., held the “superior”

“grandjathered” interest in the Guntersville facility,

notwithstanding the fact that the effective lease between the

parties contained much of the same language found in the

Albertville lease. The CON Board also finds that Barfield, the

stated applicant in the present proceeding, is under common

ownership with Claysville-Guntersville Nursing Home, Inc. and

is the successor in rights to that certain lease executed between

38a

Appendix G

Claysville-Guntersville Nursing Home, Inc. and Clark."' To the

extent that approval of the CON Board is required for the transfer

of CON rights from Claysville-Guntersville Nursing Home, Inc.

to Barfield, such approval is hereby granted as part of the CON

Board’s disposition of these applications.

A determination of which of the respective parties held the

“superior” “grandfathered” interest is not, however, dispositive

of the aforementioned applications. The applicants are still

required to meet the requirements existing at the time the

applications were filed for consideration of such applications and

the statutory criteria for approval thereof

D. “Emergency” Application Procedures

Alabama law and SHPDA regulations provide for a

truncated procedure for the granting of an “Emergency

Certificate of Need” to approve capital expenditures “made

necessary by unforeseen events which endanger the health and

safety of the patient”. Ala. Code §22-21-268(1975). §410-1-10-

.01 of the SHPDA Rules and Regulations, 1985 provides that if an

emergency exists that the agency’s Executive Director may issue

a CON, which must be ratified by the CON Board at the next

regularly scheduled meeting. Failure to ratify the emergency

CON renders such certificate null and void. No extensions of

certificates granted under this abbreviated procedure may be

granted. See §410-1-.01(e) of the AAPA.

11. Although the agreement between Barfield and Clarksville-Guntersville

Nursing Home, Inc. found in B/C 45 is titled a “sublease”, it also contains language

which is more in the form of an assignment. On June 24, 1981, Clark provided his

written consent to “the transferring, assigning or subletting” of such lease from

Claysville-Guntersville Nursing Home, Inc. to Barfield.

39a

Appendix G

Unfortunately, at the time the two applications were filed,

this administrative procedure was not being followed. Instead,

the CON Board had developed a “policy” of having applications

filed under the emergency provisions reviewed by an ad hoc

committee, to determine if they should be submitted to the CON

Board at its next meeting. This procedure was apparently

followed in regard to the Albertville and Barfield applications.

According to the rlonorable Michael Emfinger, who was then the

Executive Director of SHPDA, the ad hoc committee reviewed

both the Albertville and Guntersville applications and

determined they were suitable for submission to the full CON

Board. (Tr. 504, 505) At the August 13, 1985 CON Board

meeting, the applications were then approved.

Adding further confusion to the process, the actual written

CONs were not issued to the aforementioned applicants until on

or about October 16, 1985. On such date, CON number 731-N

was issued to “Barfield Healthcare, Inc.” for the “construction of

anew 103-bed replacement facility.” On the same day, CON 732-

N was issued to “Albertville Nursing Home, Inc.” for the

“construction of a new 133-bed replacement facility.”

Inexplicably, the certificates did not refer to the emergency

procedures, instead appearing on their face to be certificates

issued in accordance the normal application process. '”

The applications were also filed at a time in which the

Governor of Alabama had issued an executive moratorium on the

acceptance of CON applications for other than the authorization

of “expenditures of an emergency nature”. Executive Order 28,

12. The April 9, 1991 Order requires the CON Board to deviate from the

normal “emergency” procedure under which the applications were filed in order to

meet Clark’s constitutional right to a full hearing process. The parties have agreed,

however, to the procedures involved with the current proceeding.

40a

Appendix G

August 1,1984 (B/C 194) The moratorium was amended to also

provide for the consideration of applications for the “purchase,

lease,. acquisition, use or operation of hospital or medical

equipment”, Second Amendment to Executive Order 28, January

28,1985. (B/C 94) The moratorium has since expired.

The applicants allege that “emergency” conditions truly

existed in 1985. They contend that the conditions at the

respective facilities, both structurally and operationally, had

deteriorated to a point that an emergency situation existed which

resulted in an “eminent threat to public health”. Clark contests

the allegations concerning the conditions at the respective

facilities and, in any event, asserts that responsibility for

identifying and, in most cases repairing, any such defects were

contractually the responsibility of the applicants as lessees. The

CON Board’s findings of fact regarding the conditions at each of

the facilities are discussed below.

Il.

A. Condition At The Albertville Facility

The Albertville facility was originally built in 1961 by Clark,

with an addition constructed in 1969. (Tr. 1462) According to

Clark, the original building was designed by a Mr. Kohn, an

architect in Birmingham , who is now deceased. (Tr. 1464) A “Mr.

Charlton” of Birmingham served as the “structure engineer”,

according to Clark. (Tr. 1464) At the time of construction of the

facility, Mr. Clark testified that he held a general contractors

license in the State of Alabama, which allowed him to supervise

the construction. (Tr. 1466) Subcontractors included a “Mr.

“Whitacker”, whose company provided concrete and poured the

footings and the stemwalls. (Tr. 1466) Clark testified that the

4la

Appendix G

building was constructed with a “cast-in-place” concrete roof

which was imbedded with 7/8 inch wire cables. (Tr. 1467)

According to Clark, the State of Alabama sent an inspection team

to Albertville prior to the nursing home being completed. (Tr.

1468) He testified that the facility, including the roof, passed the

test performed by the state inspectors for structural integrity. (Tr.

1468) Following the construction of the nursing home, Clark

testified that a second inspection was undertaken by the

“licensure people”, which gave the building an A-2 fireproof

rating. Additionally, he stated the concrete was tested each day by

an independent testing company. (Tr. 1470) Since the 1969

addition, the Albertville Nursing Home has historically had a bed

complement of 103 SNF beds. Between 1961 and 1986, Clark

operated the nursing home facility himself at times, while at other

times leasing it out.

On cross examination, Clark’s memory of events and

circumstances surrounding the construction and operation of the

Albertville, as well as Guntersville, facilities proved to be

defective, due undoubtedly to his advanced age. In particular,

Clark was unsure as to his role with the Albertville facility shortly

before Ms. Cole began operating the facility under a ten year

lease in late 1976. He also was unable to remember the name,

date, and responsibilities of those who were cither leasing the

facility from him or were employed by him in an administrative

capacity. (Tr. 1614-1619)

Most of the testimony in regard to the Albertville facility

centered on conditions at the facility from the mid-seventies until

the time the CON was issued by the CON Board on October 16,

1985. As is shown below, the record reflects that there existed

extremely poor conditions at what was then apparently known as

the “Marshall County Nursing Home” in the months leading up to

42a

Appendix G

Clark's execution of the 1976 lease with the Albertville Nursing

Home, Inc., and Ms. Cole, and their subsequent operation of the

nursing home.

The applicant presented the testimony of Stella M. Camp,

R.N. with the State Bureau of Licensure and Certification of the

Alabama Department of Public Health regarding the conditions

at the Albertville facility. On February 6,1975, Ms. Camp and Mr.

Tom Hewette of the Department of Public Health arrived for an

on site visit of the facility. The written findings resulting from this

inspection are contained in B/C Exhibit 89. According to nurse

Camp, there was virtually “no care being provided” at the facility,

with several patients obviously suffering from neglect. (Tr. 393)

Ms. Camp's testimony reflects that the quality of care at the

nursing home was, without question, extremely poor at this point

in time. As a result of the inspection, it was recommended that the

license for the nursing home be revoked (Tr. 395, 396).

A second inspection occurred on October 28, 1976 by Mr.

Lee Robbins with the Bureau of Licensure and Certification. Mr.

Robbins’ report is contained in B/C Exhibit 92. The inspection

had been instigated due to complaints over the layoff of a large

number of employees, which allegedly endangered the care of the

residents. Mr. Robbins was met at the facility by Mr. Clark and

Ms. Judy Jennings, Office Manager. Mr. Hugh Heaton, identified

on the nursing home stationary as “Administrator”, was reported

to be in Florida during the inspection. The inspection revealed

that sixteen employees had been recently laid off by the nursing

home. Mr. Robbins indicated that Mr. Clark appeared

knowledgeable about the reasons behind the layoff and the

operations of the nursing home, which suggests that he played an

active role in the management. Mr. Robbins’ report chronicles

generally poor operating conditions at the nursing home, with

43a

Appendix G

staffing being “insufficient to meet the needs of the patients in the

facility” . (B/C Exhibit 92) As a result of the unsuitable conditions

witnessed by Mr. Robbins, he recommended that license

revocation proceedings be instigated if corrective action was not

taken in 30 days.

Ms. Dottie Starnes Mosely also testified concerning

conditions in the Albertville facility in 1976 and 1977. Ms.

Starnes is a licensed dietician and worked at different times with

Mr. Clark on a consulting basis. (Tr. 671) Ms. Starnes indicated

that on several occasions the dietary needs of the patients at the

facility were not met due to lack of suitable food and the use of

potentially contaminated canned goods. (Tr. 672) When she

discussed these problems with Mr. Clark, he indicated that they

would be corrected, however, the problems continued. (Tr. 674,

675) She also indicated the layout design of the nursing home was

poor because the kitchen was in the middle of the facility, was

constructed totally of cement and was hard to clean and that there

were numerous cracks in the “hilly” floor which resulted in

employees stumbling. (Tr. 676) She also complained about

vermin and that the temperature in the kitchen had risen to a level

that imposed a health hazard. (Tr. 677). Finally, she also was of

the opinion that the configuration of the kitchen resulted in

unsafe dishwashing procedures (679)."

In late 1976, an apparent response to the negative inspection

reports, Clark entered into negotiations with Ms. Cole for her to

13. Ms. Mosely testified that the conditions in the facility improved

somewhat after the Ms. Audrey Cole took over operational control (Tr. 686) As

examples, she testified that some of the cracks were filled and a booster for the

dishwasher was added. (Tr. 686) The dim lighting was also improved under Ms.

Cole (687). However, the floor remained unlevel and, eventually, she recalled a

portion of the building being roped off and blocked with a tarpaulin. (686).

44a

Appendix G

take over operation of the nursing home." Ms. Cole, who had

previously worked as administrator of the nursing home,

informed Mr. Clark that she would not be associated with the

nursing home again unless she had total control. (Tr. 1032)"5 She

testified Clark agreed with this demand. As evidence of this

intent, the applicant submitted a copy of a letter dated November

15, 1976 from “E. L. Clark, NHA” to Mr. Clay H. Dean, reflecting

that the facility was being leased to Ms. Audrey Clark and

confirming the “releasing of the Certificate of Need contingent

upon the lease being approved by the Bureau of Licensure and

Certification and your Bureau and Medical Services

Administration”, with similar letters being sent to other state

officials on December 8, 1976 (B/C Exhibits 93, 97 and 98).'* The

applicant contends these records are indicative of the intention of

the parties and bear on whether Mr. Clark was holding himself out

to be the holder of the nursing home rights at the facility at such

time as such authority was grandfathered in 1979.

14. Clark stated that the reason he entered into the subsequent lease with

Audrey Cole was due to thé fact that he made more money under a lease

arrangement than “just keeping her there as an administrator”. (Tr. 1476) The

evidence, however, suggests that the parties intended for Mr. Clark to have no

operational responsibilities or control with the nursing home.

15. Itisunclearasto why Ms. Cole was fired by Mr. Clark in October of 1975,

however, testimony revealed that Mr. Clark and Ms. Cole were divorced during

approximately this same time period.

16. The testimony in this proceeding reflects that the parties and state

officials used the terms “AON” and “CON” interchangeably during the years prior

to passage of the 1979 CON statute. There is no question that Mr. Clark was

referring tothe AON in conversations in 1976 leading up to the lease with Ms. Cole,

as there was no such thing as a“CON”, as we know it today, in 1979.

45a

Appendix G

Mr. Clark’s name ~’as signed to the respective letters by Judy

Jennings, his employee. Ms. Cole testified that she overheard Mr.

Clark direct Ms. Jennings to sign his name to such letter, in

confirmation of a prior telephone conversation with certain state

Officials to that effect. (Tr. 1034-1035) Mr. Clark denies

authorizing such letter. Both Mrs. Jennings and a second

employee, Gail Morgan, support Ms. Cole’s version of events.

(Tr. 643)" In addition. Mr. Charles Robbins of the Alabama

Department of Public Health testified that, following the

Licensure Advisory Board decision in 1976 to degrade the

Albertville license to probational status, Mr. Clark stated to the

Board that he no longer was: going to be in the nursing home

business. He requested the Board’s “indulgence” in regard to its

proceedings to revoke his license due to the fact that “he was in

the process of selling or getting out of the nursing home

business”. (Tr. 143)

17. In reaching his conclusion that both Mr. Clark and Ms. Cole had a

property interest in the A Ibertville CON, Judge Thompson refused to give credence

to the 1976 letter. Judge Thompson stated that the document is “questionable”

because Clark didn’t sign it and because the document purports to convey CON

rights three years before the CON statute was enacted. Judge Thompson also points

out that a person cannot convey his or her CON interest without SHPDA approval.

As to the genuineness of the document and Ms. Jennings authority in signing it,

however, the CON Board is not aware of whether the federal court had the benefit of

the testimony of Ms. Jennings. Ms. Jennings currently resides in Mississippi and

has no business relationship with either party to this case. The CON Board finds her

testimony credible.

The CON Board agrees with Clark, however that the documents are not

dispositive of the relative rights of the parties under the CON statute. Nevertheless,

they are one additional, small part of the facts that determine the “totality”

circumstances surrounding the operation of the nursing home and the status of the

parties at the “snapshot” date in 1979, when the grandfathered interest were

established.

46a

Appendix G

On December 8, 1976, Clark entered into a lease with

Albertville Nursing Home, Inc., and Audrey B. Cole (then Clark)

for the Albertville facility. The lease had a term of ten (10) years,

with a five year option to renew. Lease payments were calculated

on a “per bed” basis based on the expected reimbursement rate of

the Medical Services Administration (now the Alabama

Medicaid Agency). The lease contained a provision that if the

number of the beds in the facility increased, the rent would also

increase. (B/C 96)

Clark cites the relationship in the lease between bed capacity

and rental payments as evidence that he was offering healthcare

services by leasing his nursing home to the applicant, as opposed

to leasing a mere facility in which the lessee’s were operating a

nursing home. Clark also cites provisions in the contract

requiring the lessors to comply with all state and federal laws and

regulations to provide the owner with a copy of all inspection

reports and to use the property only as a nursing home. (B/C 96)

The lease contained language by which the lessors acknowledged

receipt of the premises in good order and agreed to maintain the

premises in the same condition. Under the terms of the lease, the

lessees are specifically responsible for maintaining the “air

conditioning, heating, equipment, furniture and fixtures.” The

lease also provided for financial responsibility for minor and

major repairs. Specifically, the lease provides that the owner be

responsible for all structural repairs in excess of one thousand

($1,000) dollars.

Ms. Cole testified that the situation existing at the nursing

home at the time that she took over in 1976 was “deplorable” and

that she was required to take immediate steps to take care of the

needs of the patients for items, such as furniture, painting, new

drapes, cubicle curtains, paving of parking lots, instailation of

47a

Appendix G

tile and fixing the floor in the activity room. (Tr. 1040) She also

employed a licensed electrician to maintain the air conditioners

and refrigerators. When the air conditioners were no longer

repairable, she bought new ones. (Tr. 1040) She also patched the

roof until, in her words, “we couldn't patch anymore”. (Tr. 1041)

She testified that she ultimately got an estimate of fifty thousand

dollars ($50,000) to fix the roof and presented it to Mr. Clark, who

declined to assume responsibility for payment of any of the

amount. (Tr. 1056) She stated that the lack of insulation in the

building resulted in severe heat during the summer and cold

during the winter. She testified the employees had to work with

coats and sweaters and occasionally that they would have to keep

the patients in bed because it was too cold to get them up. (Tr.

1041) Additionally, the sewage was “always backing up”. (Tr.

1043) She testified that they made some attempt to improve the

sewage system, however, it couldn't be fixed due to the manner in

which it was constructed. (Tr. 1043) The lack of insulation also

resulted in high noise level, according to Ms. Cole. (Tr. 1044)

It is apparent from the evidence that Ms. Cole improved the

operating conditions at the Albertville facility after she took

operational control in laie 1976. Problems remained, however,

and several witnesses testified that the situation at the Albertville

facility deteriorated in the year leading up to the “emergency”

application.

Dr. Lynn Luther served as medical director at the Albertville

Nursing Home from 198) until its closure. (Tr. 3.24) Dr. Luther

testified at length concerning poor conditions at the nursing home

in late 1984 and 1985 that “we just simply were not able to

resolve”. (Tr. 356) Dr. Luther observed that rooms in the facility

were at times so cold that patients had to be moved to other areas,

while in the summer areasin the building were so hot that patients

48a

Appendix G

had to be moved to the shady side of the building for comfort. (Tr.

357) He recalls “constant” problems with the sewer system. (Tr.

357) Like others, Dr. Luther saw evidence of roof leakage, having

observed that rain would “drip through into patients beds”. (Tr.

357)

Dr. Luther testified that events seemed to culminate in 1985,

when a crack began appearing between the concrete slab in what

Dr. Luther presumed to be a supporting wall of the building. Dr.

Luther testified that the crack grew considerably over a couple of

months and that as a result the nursing home staff moved the

patients out of the adjacent room for fear of their safety. (Tr. 359)

Dr. Luther testified that the crack in the wall made him feel like

the building was no longer safe. (Tr. 359)

Dr. Luther also testified that the acoustics in the building

were poor, resulting in a very high noise level, requiring nurses at

the main nurses station to “scream” at one another to cerry on a

conversation. Dr. Luther also recalled Ms. Cole’s efforts to put in

a suspended ceiling and fluorescent lighting, a project which was

later halted by Mr. Clark (Tr. 379)'* Also, the call system from the

patients rooms to the nurses stations only worked periodically. In

addition, Dr. Luther testified that in his opinion the general layout

of the building made it very difficult for the nursing staff to have

any sort of visual contact with the patients. Dr. Luther testified

that, based on his observations, the conditions at the nursing

home presented a danger to the health and safety of the patients in

August of 1985.

At cross examination, Dr. Luther conceded that he was

18. Clark asserts that the project was halted due to the fact that the lease was

expiring and Ms. Cole had been told that she woutd have to leave the facility.

49a

Appendix G

unaware of any patients who suffered any kind of injury as a

result of the shifting wall, nor did he ever observe any portion of

the wall actually falling. (Tr. 365) He also stated that he had not

filed any complaint or report to the Division of Licensure and

Certification in regard to the conditions that he observed. (Tr.

366) Although Dr. Luther testified that he felt that Ms. Cole had

attempted to do everything possible to improve the air

conditioning system, he stated that he was not aware of any effort

by Ms. Cole to explore putting in a heat pump system. (Tr. 368)

The applicant also presented the testimony of Arthur Joe

Grant. Mr. Grant was employed for 21 years as an employee of

the State Health Department in an architectural capacity. Mr.

Grant graduated from Auburn University with a degree in

architecture and served with the United States Corps of

Engineers. He had several job titles with the State Health

Department, the last being Director of the Division of Plans and

Construction. In 1985 he served as Director of the Division of

Technical Services of Plans and Construction.

Mr. Grant testified both as to conditions with the Albertville

and Guntersville facility. In regard to the Albertville facility, Mr.

Grant was questioned concerning a report that was prepared by

the Department of Public Health and transmitted by him to

SHPDA on August 12, 1985. (B/C 128) The report had been

written by Mr. Cecil Barnes of Mr. Grant’s staff, as part of the

State Health Department’s procedure of making available to

SHPDA results of their inspection reports. (B/C 128) Mr. Grant

informed SHPDA on behalf of the Department of Public Health

that there existed “hazards to patient safety” in the Albertville

facility. The report discusses generally the apparent movement

associated with the new wing of the building as well as the fact

that the back wall of the “sun parlor” “appeared” to be leaning

50a

Appendix G

into the building. The report reflects that the roof slab of the

building is “cracked all the way through in two places” and that

there are leaks “throughout the building”. It also cites the fact that

there is not a “clean utility room” in the 1968 addition, with no

utility rooms found in the original building.

Mr. Grant visited the Albertville facility personally on

March 26, 1986, which is reflected in a report he drafted shortly

thereafter (B/C 139).'® The April 16, 1986 report discusses efforts

by Ms. Cole to partition off portions of the building (identified as

the “north and south end of the lobby”) to avoid injury in case of

further deterioration, fracture or collapse. Mr. Grant testified that

at the time of his March, 1986 inspection, he was aware that the

patients would soon be transferred to a new facility, however, he

was concerned of a “potential structural failure” in the interim.

Mr. Grant testified, based on personal observations and review of

structural reports prepared by others, the recreation space

separating the 1963 building was structurally dangerous. (Tr.

196-198) He also expressed concern over the possibility of a

collapse of the roof. (Tr. 192) Despite his concerns over “serious

structural failure”, he felt that the fact that the area had been

partitioned and roped off with a heavy duty canvas provided

adequate protection for the patients in the interim. Other concerns

such as sewage, leaking pipes, etc. were, in his opinion, not as

serious. (Tr. 192)

19. Clarkand RTC objected to any testimony concerning conditions at the facility

which occurred after the date of the 1986 hearing. The testimony was allowed and

exhibits admitted on the basis of Mr. Grant’s testimony that the inspection report

revealed conditions of a “permanent type” which would have existed for some length of

time, certainly as far back as August of 1985. The hearing officer allowed testimony on

behalf of the applicants and Clark of conditions that existed at the time that the

applications were filed and considered, even if such testimony happened to be based on

inspections which were made shortly therafter. (Tr. 182)

Sla

Appendix G

Mike Mostella® also testified and described certain

conditions at the Albertville facility, and provided a narrative for

a video tape of the premises. (B/C 144)” The film as edited,

touches on many of the problems with the facility cited by other

witnesses. On cross-examination, Mr. Mostella, who was

responsible for maintenance at the Albertville facility, testified

that he did not take action to correct or mitigate certain non-

structural problems that he described, such as the existence of

exposed wiring on the ceiling of the building.

Mr. Frank Bolding and Mr. B.H. Nunnelley also testified as

to conditions in the Albertville facility. Mr. Bolding worked as a

maintenance employee in the Albertville facility from 1980 to

1985. Mr. Bolding’s observations support the testimony of the

other witnesses concerning the conditions at the Albertville

facility. He also testified that the copper tubing used with the

plumbing system was incompatible with the concrete

construction and was constantly getting “pin holes” resulting in

constant leaks. (Tr. 48) He also testified that there were cracks in

the floor which allowed bugs and, in one instance, snakes, to

obtain access to the building. (Tr. 55) On cross-examination, he

agreed that Ms. Cole was successful in reducing the bug problem

by having the exterminator visit often. (Tr. 71-72)

Ms. Cole provided additional testimony as to the conditions

in the Albertville facility in late 1984 and 1985, which she claims

20. Mr. Mostella is the son of Ms. Cole.

21. The hearing officer ultimately admitted an edited version of the

videotape which excluded those portions of the videotape that the witness could not

testify, with certainty, reflected couditions that had not materially changed since

1985 (the videotape was taken in 1989). A similar procedure was followed with the

videotape introduced into evidence in regard to the Guntersville facility (B/C - 143).

52a

Appendix G

constituted the emergency situation justify the application. She

testified that in late 1984, she noticed that the walls were actually

shifting and the ceilings were separating and allowing rain to

enter. The movement in the walls and the ceiling made her fearful

that the walls would fall and that her patients, visitors and

employees would be hurt. (Tr. 1042)

In order to attempt to protect the public from what she

considered to be structural deficiencies in the building, Ms. Cole

put up a tarpaulin to keep everyone out of the lobby area that

connected one part of the older building from the new part. (Tr.

1044) She moved some of the patients from this general area and

allowed no one to enter the area except her employees. (Tr. 1044)

During this general time period, Ms. Cole indicates that she

received a copy of an inspection report by Danny Brisendine, a

professional engineer, on the condition of the Albertville nursing

home. Acopy of this report was sent to Mr. Clark by cover letter.

(Tr. 1051; B/C 118)” In response to the report, Ms. Cole indicated

that Mr. Clark backed a cement truck up to the building and put

some cement in areas in which there was “no foundation” (Tr.

1054). According to Ms. Cole, he took no other action and refused

to respond to other requests for him to pay for structural repairs in

excess of one thousand dollars ($1000.00), consistent with the

lease. (Tr. 1055) As an example, Ms. Cole indicates that she

received an estimate for fixing the roof of fifty thousand dollars

($50,000) and presented the estimate to Mr. Clark. Mr. Clark

responded by telling her that she would be required to fix it

herself. (Tr. 1057)

22. Mr. Brisendine was not available for cross-examination by Clark,

therefore, his report (B/C -1 16) was admitted into the record for the limited purpose

of showing that Mrs. Cole placed Mr. Clark on notice of her concerns over the

structural integrity of the building. The actual conclusions of Dr. Brisendine have

not been reviewed or considered by the hearing officer.

53a

Appendix G

On cross examination, Ms. Cole stated that the emergency

that caused her to seek the emergency CON was the wall

movement and concern over the status of the foundation. (Tr.

1080) In this regard, she indicated that she looked on the outside

of the building near the roped off portion of the lobby and saw

what appeared to be a lack of foundation under that particular

portion of the building. (Tr. 1083) Despite the adverse reports by

Arthur Joe Grant and Mr. Barnes, however, she conceded that she

had never been told that she was in danger of being placed on

probation by the State Department of Public Health. (Tr. 1081)

She also acknowledged that she would have been reimbursed

ultimately through Medicaid for costs associated with any repair

that she undertook with the Albertville facility. (Tr. 1087)

Ms. Cole also testified as to the other, less immediate,

problems with the Albertville facility. In response to questions

about the inadequate size of the kitchen, Ms. Cole testified that

Mr. Clark had promised to build a new one, yet never carried

through with his promise. (Tr. 1095) She also testified that she

needed more private rooms for her patients, however, she

admitted she could have converted semi-private rooms to private

rooms, which would have resulted in a reduction in the bed

capacity of the facility. She did not examine the possibilities of

adding to the building (Tr. 1101, 1103)

As aresult of the conditions in 1985, Ms. Cole indicates that

she retained assistance in seeking authority from SHPDA to

relocate the beds. She states that she planned to build a facility

that had adequate heating, cooling and plumbing. She also

planned to build a facility that had a dining room that would allow

all the residents to eat at one time, rather than in shifts and would

have a large conference room for exit interviews. It was also her

intention to build a facility with smooth walls and ceilings and an

54a

Appendix G

adequate laundry room with interior access. She also desired an

ambulance entrance that would allow patients to be picked up or

dropped off at the facility without being exposed to the elements.

(Tr. 1049)

Mr. Tignor Zorn, past director of the Bureau of Licensure

and Certification for the Alabama Department of Public Health,

testified on behalf of Clark. He stated that in order to receive a

license, the original Albertville facility had to have been subject

to an on site visit to insure that it was in compliance with the State

Board of Health rules and regulations then in existence. (Tr.

1376) He has no independent memory, however, of such an

inspection. He also doubts whether the architectural plans were

ever reviewed. (Tr. 1375)”

Clark also presented the testimony of Beaul Hunkapiller in

regard to the condition of the Albertville facility. Mr. Hunkapiller

graduated from Auburn University in engineering and has held a

variety of jobs in the civil, structural and architectural areas (Tr.

1269). He is currently in private business in Guntersville. Mr.

Hunkapiller took issue with the allegations that the Albertville

facility was structurally unsound and represented an imminent

threat to the residents. Mr. Hunkapiller determined both the

Albertville and Guntersville facilities, although he made a more

comprehensive inspection of the Guntersville facility. (Tr. 1272,

1295)*

23. Mr. Zorn was evasive concerning the purpose of his testimony and only

reluctantly conceded that he had an agreement to be paid by Clark for his expert

testimony and services.

24. Mr. Hunkapiller’s testimony was limited to those conditions at the

Albertville and Guntersville facility that he could testify with a high degree of

certainty were existence in 1985.

55a

lix G

In regard to Albertville, Mr. Hunkapiller reported that the

type of soil found in Albertville area is a type of sandy soil on top

of sandstone rock. (Tr. 1282) According to Mr. Hunkapiller, the

footings appeared to have been dug into either the top of the rock

or into the “firm subsoil”. (Tr. 1282) Mr. Hunkapiller only did an

in depth examination of those footings which were exposed at the

Albertville facility and did not make an examination to determine

if there was steel reinforcement in such footings. (Tr. 1283) He

found only “slight settlement” of the footings at the new addition

of the Albertville facility, which he stated was consistent with the

conditions shown on the video. (Tr. 1284) He stated that this sort

of crack was “minor” and common for buildings of such age.

Mr. Hunkapiller confirmed that there have been movements

in walls in the “lobby, ... the activity room or whatever, the

general purpose room”. He could also tell that there had been

some patchwork done in the northwest corner. Finally, he found

cracks all the way through in the roof of the older portion of the

building. (Tr. 1286) Mr. Hunkapiller also testified that he noticed

that there was a crack in one of the block walls in a patient’s room

that went all the way through the wall, exposing daylight. (Tr.

1355) He stated that such crack would typically be repaired by

sawing it out and placing a “mastic” (a thick tar substance) in the

crack. He observed that regular roofing tar had been poured into a

crack in a repair attempt. (Tr. 1287)

Mr. Hunkapiller also examined the concrete slab porch floor

at the rear of the original north wing of the Albertville facility. (Tr.

1288) This floor had “collapsed” in the center. (Tr. 1288) He

attributed the collapse to “poor construction” and a lack of

adequate support underneath. Nevertheless, he testified that the

porch was a “localized typed thing” that could have been replaced

and would not effect the structural integrity of the building.

56a

Appendix G

Mr. Hunkapiller also commented concerning the

“honeycombing effect” on the concrete observed in the video. He

stated that the honeycombing was caused by air being left in the

concrete during construction, which caused portions of the

concrete to “pop off’. He stated that this did not affect the

structural integrity of the roof and could be corrected by rubbing a

concrete grout mixture over the area and covering it with

flashing. (Tr. 1290) He testified that the roof itself was composed

of tar paper covered by roofing compound and was without

insulation. (Tr. 1291)

Mr. Hunkapiller stated that he had reviewed certain concrete

tests performed by the Pittsburgh Testing Laboratory at the time

of the original construction of the facility in March of 1961 and

during the construction of the addition in 1969. According to the

reports, the concrete that was tested exceeded the minimum

strength requirements.

On cross-examination, Mr. Hunkapiller conceded that the

“sidewall” at the Guntersville facility was crooked and separated

from the building itself. (Tr. 1324) He also conceded that one of

the pictures of the facility showed one block of the “real” wall to

be loose, although he had not observed any problems with any

other blocks. He also stated that all of the footings to the building

did not have a twelve inch soil cover, which is desirable. (Tr.

1340)

Mr. Hunkapiller attempted to find plans from the Albertville

building, however, none were available. He had no personal

knowledge whether the plans were ever drawn. however, Mr.

Clark indicated to him that plans were followed in the initial

construction. (Tr. 1348)

57a

Appendix G

In response to questions regarding the construction of the

facility, counsel for the intervenor patients presented Mr. George

W. Edmonson, who was retained by Mr. Clark in conjunction

with the improvements to the Albertville facility and the original

Guntersville construction. Mr. Edmonson stated that in his visit

to the original Albertville facility, the facility “stunk”, and had

very dim lighting. The kitchen was very hot and building looked

very “rough”. He estimated that the quality of construction in the

original building was “less than average”. (Tr. 1850)

Mr. Edmonson was questioned concerning a note in the files

he maintained from a “W.G.”, who he identified as Wayne Gray,

his project manager and draftsman in regard to the Guntersville

project. The note reflects a comment made to Mr. Gray by the

structural engineer, an employee of “Southern Pre-Stressed

Concrete”, that he had been told that Mr. Clark was using

“mortar” or “masonry mix and sand” inappropriately in the roof

system. Mr. Edmonson said he confronted Mr. Clark with this

information, who denied it. (B/C - 215; Tr. 1866) If true, Mr.

Edmonson indicated the use of mortar could have negatively

affected the integrity of the roof. (Tr. 1835)

Based on the totality of testimony and evidence presented in

regard to the Albertville facility, the CON Board finds that there

existed at the time of the application conditions in such facility

which endangered the health and safety of the patients. This

finding and conclusion is based not only on the testimony and

inspection reports concerning the shifting of certain parts of the

building (which suggest the possibility of structural failure), but

also on other conditions which, while not as individually

significant, nevertheless negatively affected the health and safety

of the patients, i.e., the continual leaking of the roof caused, at

least in part, by the structure of the building and the inadequate

58a

Appendix G

insulation and sewage system. The CON Board further finds that

the aforementioned conditions were not reasonably

“foreseeable” within the context of the emergency review

provisions and constituted an “emergency” for purposes of the

CON Statute, the 1985 SHPDA Rules and Regulations and the

Executive Moratorium.

The CON Board also finds that the deficient conditions at the

facility related to the structure itself were, under the terms of the

lease, primarily the responsibility of Clark, who’s record reflects

an unwillingness to cooperate with the lessee to conduct such

repairs and improvements in a reasonable fas*‘on so as to protect

the health and safety of the patients in the facility. Irrespective of

the actual financial responsibility for the repairs, however, the

CON Board finds based on the testimony and evidence of record

that the repair or renovation of the existing Albertville facility is

not a viable alternative.

The CON Board also finds that Albertville Nursing Home,

Inc. and its President, Ms. Cole, have exhibited sufficient

management capability, manpower, long-range planning and

expertise to provide the services associated with the proposed

facility.

iil.

A. Condition at the Guntersville Facility

In the mid 1970’s, Clark initiated construction of the

Guntersville facility located in the Claysville-Guntersville,

Alabama area. (Tr. 1822) The facility was completed in 1978. Mr.

Clark testified that Mr. George Edmonson was the architect of the

Guntersville Nursing Home, with Clark himself serving as the

59a

Appendix G

general contractor. (Tr. 1479, 1483) He testified that “Southern

Precast Concrete Company” was responsible for putting the roof

of the Guntersville building in place. He stated that the roof at

Guntersville is a “self-supporting system” and is fireproof (Tr.

1482) A “Mr. Whitacker” was responsible for the concrete work

on the footings and foundation of the Guntersville facility. He

indicated that it was in the plans to put a “eight inch beam all the

way around [the top of the building] with steel in it”, which was

done. (Tr. 1483) Mr. Clark testified that a “Mr. Kennedy” was the

roof contractor, with “Martin Plumbing and Electrical

Company” doing the wiring and plumbing. “Dearman

Construction” did the block and brick work. He stated that a

consulting engineer, William T. Hill, drew up the schematic plans

for the sewage lagoon system. As with the Albertville facility, Mr.

Clark testified that the construction of the facility was inspected

by the Department of Public Health, “three or four times”. (Tr.

1485) The concrete was tested by the Pittsburgh Testing

Laboratory and ran “about four thousand pounds per inch”,

which, according to Clark, was a thousand pounds more than the

required minimum. (Tr. 1485) He testified that the total cost of

the Guntersville facility was one million six hundred thousand

dollars ($1,600,000), of which one million two hundred thousand

dollars ($1,200.000) was borrowed from City Federal Savings &

Loan.*

25. Thecost of construction and the amount of Mr. Clark’s investment in the

Guntersilie facility was disputed. The applicant produced a document, (B/C 147), in

which Mr. E.L. Clark described his nursing home for purposes of attaining a loan. In

this document, Clark requested a loan of $700,000 for the finished Guntersville

facility. In March of 1979, however, Clark granted City Federal Savings & Loan

(now RTC) a mortgage in the amount of $1,200,000.00 on four parcels of property

(including the Guntersville facility) to secure a note in the same amount to Clark and

Brindlee Mountain Nursing Home, Inc. Additionally, B/C Exhibit 20 prepared in

(Cont'd)

60a

Appendix G

As with the Albertville facility, on cross-examination Mr.

Clark revealed a very poor memory concerning the facts and

circumstances surrounding the construction of the Guntersville

facility. Although he testified that the facility was built according

to plans prepared by Mr. Edmonson, Mr. Edmonson later testified

that the floor slab had already been poured before he first

inspected the facility. (Tr. 1479, 1824) In addition, although a

sprinkler system was included in the plans, there is no evidence

one was ever installed.

The record reflects that Clark constructed the Guntersville

facility despite a denial of his application for a AON for the

expenditure.” On April 17, 1975, Mr. Clay H. Dean, Director of

(Cont'd)

conjunction with the request for a revision of the state health plan submitted by Mr.

Frank Clark, then President of Claysville-Guntersville Nursing Home, Inc., reflects

that the facility was constructed with a $1,200,000.00 loan from City Federal and a

loan from Mr. E.L. Clark to the “nursing home” for $440,000.00. In B/C 147, Mr.

Clark also states that the Guntersville building “can be used as a nursing home,

hospital, motel/lounge and restaurant or rehabilitation center”. According to the

memorandum prepared by Mr. B.H. Nunnelly, Audit Supervisor for Medicaid,

“Mr. Clark’s financial records concerning construction of the facility are, at best,

vague, sketchy, and almost non-existent.” Mr. Nunnelly stated that the information

provided by Mr. Clark was incomplete and contradictory. (B/C 31). The hearing

officer finds it impossible to ascertain the actual cost of the Guntersville facility and

Mr. Clark’s actual investment, due to the consolidated mortgage, lack of

construction records and Mr. Clark’s poor memory.

26. Inareport contained as part of Clark Exhibit 140, prepared in anticipation

of Clark’ s first request for an AON, in 1975, states in regard to an analysis of another

Clark property:

“Official records pertaining to the licensing of this

facility for the last several years indicate both physical

(Cont'd)

6la

Appendix G

Bureau of Health Facilities Construction, advised Clark that his

application for AON for a proposed 91 bed Guntersville nursing

home facility had been denied. (Tr. 1513; B/C 2) This denial was

appealed to a fair hearing officer, where it was upheld. (Tr. 1515)

At approximately the same time as the Guntersville facility

was completed, Clark entered into a five year lease with

“Claysville-Guntersville Nursing Home, Inc.” (B/C 6) On

January 15, 1979, Clark entered into a second lease on the same

building with the same lessee. (B/C 18) This second lease

provides a property description of the premises and states that it

covers “the building with 103 beds, all equipment, fixtures and

furniture located therein.”

Like Albertville, the January 15, 1979 Barfield lease

provides that the premises may be used only as a nursing home. It

also states that the lessee is also responsible for complying with

all state and federal regulations regarding the operation of the

nursing home and is obligated to give Clark a copy of all

inspection reports. The acquisition of equipment required to

comply with such regulations is, according to the lease, the “sole

(Cont'd)

plant and operational violations. The operation as

pertains to patient care and services has been marginal

to substandard with minor exception during 1970 at

which time it was issued a regular license. With the

foregoing exception, the facility has operated under a

Temporary or Probational license for the last ten years.

Operational control during this time has been the

responsibility of Mr. E.L. Clark as well as two

corporate controls. At the present time, the facility is

being considered for a suspension or revocation of

license and in which a public hearing will be held by

the State Committee of Public Health on March 19,

1975 (moved to Albertville discussion).”

62a

Appendix G

and absolute responsibility of the lessee”. The lessee is also

responsible for maintaining the “building, premises, air

conditioners, heating equipment, furniture and fixtures ...

together with the parking lots, driveways and shrubbery [sic]’”.

(B/C 18)

The lease also provides that if any structural repairs are

required, the “Lessee shall only pay the first four thousand

thereof and lessor shall pay the excess provided he is notified of

the necessity of said repairs”. The lease had a term of ten years

and was based on a monthly rental amount of ten thousand dollars

($10,000), said amount being “temporary until such time [as] a

fixed cost can be obtained and approved by the Medical Services

Administration”. On February 18, 1979, yet a third lease was

executed between the parties (B/C 12). This lease is for a term of

five years and provides for different lease payments than the

January 15, 1979 lease.

On May 29, 1979, Frank Clark, on behalf of Claysville-

Guntersville Nursing Home, Inc., and E.L. Clark signed an

agreement which purported to resolve certain disputes between

the parties concerning the prior lease agreements pertaining to

the Guntersville facility. The agreement provides for financial

settlement between the lessee and lessor and restates certain

interim lease terms, pending the establishment and approval of a

lease payment figure by the Medical Services Administration.

The lease states that upon approval of the Medical Services

Administration approving a rental figure for the nursing home,

the January 15, 1979 Barfield lease was to come in to full force

and effect.”’ The parties also agreed to undertake certain acts in

27. The subsequent approval by the Alabama Medicaid Agency, successor to

the Medical Services Administration, of the lease costs incurred by “Barfield

Healthcare, Inc.” appears

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