LIBERTY DIALYSIS-HAWAII, LLC, a Delaware limited liability company, Petitioner/Appellant-Appellant/Cross-Appellee,
RAINBOW DIALYSIS, LLC, a Delaware limited liability company, Respondent/Appellee-Appellee/Cross-Appellant, and State Health Planning & Development Agency, Department of Health, State of Hawaii, an administrative agency of the State of Hawaii, Respondent/Appellee-Appellee.
Reconsideration Denied July 16, 2013.
Daniel P. Collins, for petitioner.
Ellen Godbey Carson, Honolulu, for respondent Rainbow Dialysis, LLC.
Ann V. Andreas, Honolulu, for respondent State of Hawaii.
RECKTENWALD, C.J., NAKAYAMA, and McKENNA, JJ., with ACOBA, J., dissenting, with whom POLLACK, J., joins.
[130 Hawai'i 96] This appeal requires us to consider whether the Department of Health's general administrative rules concerning disqualification apply to State Health Planning & Development Agency (SHPDA) committees that are established to reconsider the agency's approval of a Certificate of Need. Briefly stated, SHPDA granted Rainbow Dialysis, LLC a conditional Certificate of Need to establish two outpatient dialysis facilities at Kaiser Foundation Health Plan, Inc., facilities on Maui. Another Maui dialysis provider, Liberty Dialysis-Hawaii, LLC, sought reconsideration of SHPDA's decision. Thereafter, a five-member Reconsideration Committee unanimously approved Rainbow's conditional Certificate of Need.
Liberty appealed the Reconsideration Decision to the circuit court, arguing that SHPDA Administrator Ronald E. Terry and another Reconsideration Committee member, Anne Trygstad, should have been disqualified from participating in the Reconsideration Decision under the Department of Health rules. Liberty also argued that the Reconsideration Committee failed to review Rainbow's application de novo, and thereby improperly [130 Hawai'i 97]
placed the burden of proof on Liberty. The circuit court affirmed, holding that the SHPDA Administrator should have been disqualified, but that his participation in the Reconsideration Decision was harmless. The circuit court rejected Liberty's remaining points of error.
On appeal to this court, Liberty argues that Administrator Terry's participation was not harmless and, in any event, Rainbow did not timely raise this argument. Liberty also argues that the Reconsideration Committee erred in refusing to disqualify Trygstad. Finally, Liberty argues that, if this court remands for a new reconsideration hearing based on Liberty's disqualification arguments, it also should advise the Reconsideration Committee that Rainbow bears the burden of proof on remand. Rainbow cross-appealed, and argues that the circuit court erred in determining that Administrator Terry should have been disqualified.
We hold that neither Administrator Terry nor Trygstad was disqualified from participating in the Reconsideration Decision. With regard to Administrator Terry, Liberty relies on Hawaii Administrative Rules (HAR) § 11-1-25(a)(4), a Department of Health rule that prohibits a hearings officer from hearing or deciding a contested case in which he or she " substantially participated in making the decision or action contested[.]" However, in crafting the reconsideration statute, Hawaii Revised Statutes § 323D-47, the legislature clearly intended that the SHPDA administrator participate in both the initial decision on a Certificate of Need, and in any reconsideration of that decision. Because HAR § 11-1-25(a)(4) conflicts with this intent, it would be invalid if applied in the circumstances here. Accordingly, we hold that HAR § 11-1-25(a)(4) is inapplicable.
With regard to Trygstad, Liberty relies on HAR § 11-1-25(a)(2), a Department of Health rule that provides for disqualification where a hearings officer, director or member is " related within the third degree by blood or marriage to any party to the proceeding or any party's representative or attorney [.]" Liberty alleges that Trygstad's brother-in-law is the " Kaiser Permanente physician-in-charge for Maui," and testified as a Kaiser representative in three SHPDA advisory panel hearings prior to the initial decision on Rainbow's application, and that, accordingly, Trygstad should have been disqualified from the Reconsideration Committee. We hold that HAR § 11-1-25 is inapplicable to the SHPDA reconsideration proceedings. SHPDA's more specific rule, HAR § 11-185-32, governs disqualification practices and procedures in these proceedings, and does not require that Trygstad be disqualified.
Because our resolution of these issues is dispositive, we do not address Liberty's remaining points of error. Based on the foregoing, we affirm the circuit court's judgment, which affirmed the Reconsideration Decision.
The following factual background is taken from the record on appeal.
A. Rainbow's Certificate of Need application
Rainbow filed a Certificate of Need (CON) application  with SHPDA for the establishment of two outpatient dialysis facilities on Maui. Rainbow is and was a wholly owned affiliate of Kaiser Foundation Health Plan, Inc. (Kaiser). Rainbow's two facilities would be located in or near existing Kaiser clinics in Wailuku and Lahaina. Rainbow asserted that internalizing dialysis services within Kaiser's health care system would improve management of patient care, provide benefits to patients in isolated parts of West Maui, bring competition to the dialysis market and lower prices, create savings over the dialysis services then being provided by Liberty, allow for more robust provision of services for QUEST patients, and allow Kaiser to pass savings on to the community in the form of [130 Hawai'i 98]
financial and in-kind donations to community partners.
Liberty opposed Rainbow's CON application, asserting that the application failed to meet several criteria for the grant of a CON. Additionally, Liberty asserted that it has provided dialysis services on Maui since 2006, and that there were several reasons that Kaiser's dialysis expenditures had increased, including an increase in the number of Kaiser patients receiving dialysis, regulatory changes, and inflation. Liberty also asserted that its mission " includes providing a safety net[,]" and that its ability to continue to provide services was dependent on its ability " to spread the real costs across a broad base of commercial patients[.]" Liberty asserted that Rainbow's proposal would jeopardize Liberty's " ability to maintain its current scope of services for persons who are not insured by Kaiser." Specifically, " [i]f the small percentage of patients with commercial insurance declines or disappears, Liberty [ ] will be unable to continue to subsidize operations in more remote regions or care for a substantial portion of the underinsured or uninsured patients who currently receive care from Liberty [ ]."
As required under HRS § 323D-44(a), three separate SHPDA advisory panels considered Rainbow's CON application: the Tri-Isle Subarea Health Planning Council, the CON Review Panel, and the Statewide Health Coordinating Council (SHCC). Each advisory panel held public meetings in which they received extensive testimony both for and against the proposal, and each issued non-binding recommendations. By a 4-1 vote, the Tri-Isle Subarea Health Planning Council recommended approval of the application. By a 5-0 vote (with one abstention), the CON Review Panel recommended denial of the application. By a 7-4 vote, the SHCC recommended denial of the application.
On May 3, 2010, SHPDA, through Administrator Terry, filed a Decision on the Merits, approving Rainbow's application and issuing a conditional CON. In so doing, SHPDA imposed three conditions on Rainbow. First, Rainbow was required to submit a " detailed long-term implementation plan" regarding how it and Kaiser would allocate cost reductions to the public and community. Second, Rainbow was required to provide a written acknowledgment that failure to fulfill the implementation plan would constitute a breach of the HAR and could result in withdrawal of the CON. Finally, Rainbow was required to enter into a joint and several written undertaking with Kaiser to provide chronic renal dialysis services to Hana and Molokai, should Liberty cease providing services in those communities within 10 years of the Decision on the Merits. Rainbow subsequently informed SHPDA by letter that it accepted the conditions set forth in the conditional CON and modified its application accordingly.
Liberty sought reconsideration of the Decision on the Merits pursuant to HRS § 323D-47(5) and HAR § 11-186-82. Liberty argued that there was good cause for reconsideration because SHPDA's decision differed from the recommendation of the SHCC.
Pursuant to HRS § 323D-47, a five-member Reconsideration Committee was convened, composed of Administrator Terry, and [130 Hawai'i 99]
the chairpersons of the SHCC, the CON review panel, the plan development committee of the SHCC, and the Tri-Isle Subarea Health Planning Council. On June 14, 2010, four of the five Reconsideration Committee members convened a public meeting and voted to convene a public hearing for reconsideration of the Decision on the Merits.  SHPDA appointed Andrew Tseu as Hearings Officer " to facilitate pre-hearing conferences and hearing procedures for the Reconsideration Committee."
Prior to the hearing on Liberty's reconsideration request, Liberty filed a motion to disqualify Administrator Terry from the Reconsideration Committee pursuant to HAR § 11-1-25(a)(4) and (5), on the ground that he could not sit in review of his own decision and had a personal bias or prejudice that would prevent him from rendering a fair and impartial decision. Specifically, Liberty argued:
In the present matter, HAR § 11-1-25 mandates Terry's disqualification from the reconsideration hearing because, not only did Terry substantially participate in the certificate of need review process but, as the SHPDA administrator, he was the ultimate decision-maker on the Application. Moreover, Terry unilaterally approved the Application despite the recommended rejections by the CON Review Panel and Statewide Council, without providing a written explanation as required by agency rule. Terry further has a personal bias or prejudice which will prevent a fair and impartial decision on this contested case.[]
Rainbow opposed Liberty's motion. Rainbow argued that HRS § 323D-47 mandates that the SHPDA administrator serve as a member of the Reconsideration Committee, even if the administrator is reviewing his or her own decision. Rainbow also argued that, to the extent HAR § 11-1-25 conflicts with HRS § 323D-47, HRS § 323D-47 governs. Additionally, Rainbow argued that the SHPDA disqualification rules set forth in HAR chapters 11-185 and 11-186 applied, rather than HAR § 11-1-25. Finally, Rainbow argued that Liberty's allegation of Administrator Terry's personal bias was " unfounded and frivolous."
Liberty also filed a motion to disqualify a second Reconsideration Committee member, Anne Trygstad, pursuant to HAR § 11-1-25(a)(2). Liberty alleged that Trygstad is the sister-in-law of Dr. George Talbot, who Liberty described as Kaiser's " physician-in-charge of Maui[.]" Liberty argued that Kaiser was a party to the proceeding and/or a party's representative, and that Dr. Talbot offered testimony in favor of Rainbow's CON application at the hearings before each of the three review panels. Liberty also argued that Trygstad should be disqualified pursuant to HAR § 11-1-25(a)(5) because she had a personal bias or prejudice due to her relationship to Dr. Talbot.
Rainbow opposed Liberty's motion to disqualify Trygstad. Along with its motion, Rainbow submitted a declaration from Dr. Talbot in which he stated:
1. I am employed by the Hawaii Permanente Medical Group (" HPMG" ), a Hawaii corporation that contracts with [Kaiser] to provide physician services for members of [Kaiser] and other patients [130 Hawai'i 100]
seen at Kaiser's medical facilities in Hawaii.
2. I am currently the HPMG physician in charge of Maui and in that role, I oversee the physician services for Kaiser's Maui clinics, which includes the Kaiser Wailuku Medical Clinic. I am not in charge of the administrative oversight of the Wailuku Medical Clinic, nor am I in charge of the affiliated health care services provided by non-physicians at the Wailuku Medical Clinic. The administrative operation of the Wailuku Clinic is overseen by employees of the Kaiser Foundation Hospitals, Inc., a separate corporation that owns and/or manages Kaiser's hospital and clinic facilities and employs certain affiliated care providers for those facilities.
3. I am the brother-in-law of Anne Trygstad. Other than testimony I presented to the Tri-Isle Subarea Council at its December 3, 2009 public meeting on [Rainbow's CON] Application, at which Ms. Trygstad was present, I have had no communication with Ms. Trygstad in the past two or three years.
4. I own a home in the same subdivision as Ms. Trygstad owns a home. The subdivision consists of over 20 separate houses. My house is at the opposite end of the subdivision from the house owned by Ms. Trygstad.
5. I did not participate in the preparation of the Rainbow CON Application. My only involvement in the CON proceedings has been as a witness, not as a party. I am not an employee or representative of Rainbow.
The Reconsideration Committee denied Liberty's disqualification motions. The Reconsideration Committee did not state its reasoning on the record.
Following a reconsideration hearing, the Reconsideration Committee issued its Decision unanimously approving the conditional certification of Rainbow's application. The Reconsideration Committee found that " [i]t was unconstested that Liberty had the burden of proof in this Reconsideration proceeding pursuant to HRS § 91-10(5) because Liberty initiated the Reconsideration proceeding and acknowledged in writing its burden of proof." The Reconsideration Committee also made detailed findings and conclusions regarding the ways in which Rainbow's CON application either met the CON criteria, or would meet the criteria if modified by the conditions set forth in the Committee's decision. Accordingly, the Reconsideration Committee ordered that a conditional CON be approved and issued, with Rainbow to modify its proposal to incorporate the following conditions: that (1) Kaiser members be permitted to receive dialysis services from Liberty " for as long as they wish" ; (2) Rainbow accept all dialysis patients regardless of ability to pay; and (3) Rainbow and Kaiser provide chronic renal dialysis services to Hana and Molokai, should Liberty cease providing services to those communities within 10 years of the Decision on the Merits.
B. Circuit court appeal
Liberty appealed the Reconsideration Decision to the circuit court, raising numerous points of error. Relevant to the issues on appeal, Liberty argued in its opening brief that the Reconsideration Committee erred in denying its motions to disqualify Administrator Terry and Trygstad. Liberty also argued that the Reconsideration Committee failed to review Rainbow's application de novo, and " thereby improperly placed the burden of proof on Appellant Liberty in contradiction of HAR § 11-186-42[.]"
The circuit court held a hearing on Liberty's appeal and orally ruled that " Administrator Terry should have automatically [130 Hawai'i 101]
disqualified himself from sitting on the reconsideration committee and his failure to do so was error." Accordingly, the circuit court stated that it would remand to SHPDA with instructions to hear the reconsideration request with an acting SHPDA administrator other than Terry.
Rainbow subsequently filed an ex parte motion for an expedited status conference to address this court's holding in Waikiki Resort Hotel, Inc. v. City and County of Honolulu, 63 Haw. 222, 624 P.2d 1353 (1981), and the ICA's holding in Hui Malama Aina O Ko'olau v. Pacarro, 4 Haw.App. 304, 666 P.2d 177 (1983). Rainbow argued that, pursuant to these cases, an agency's decision will not be invalidated on the ground that a disqualified official participated in the decision, so long as the decision was passed by a majority of legally competent members. Accordingly, Rainbow argued, Liberty failed to meet its burden of establishing a legal basis for remand. Liberty opposed the motion, arguing, inter alia, that Rainbow's arguments were untimely, the motion was procedurally improper, and Waikiki Resort Hotel was distinguishable.
The circuit court construed Rainbow's motion as a motion for reconsideration, and denied it without a hearing on the ground that Rainbow " waived its right to assert those cases and make related arguments due to failure to cite those cases in its answering brief." The circuit court subsequently issued a written order granting Liberty's appeal on the ground that Administrator Terry should have been disqualified, and remanding to SHPDA with instructions to hold the reconsideration hearing with an acting SHPDA administrator other than Administrator Terry.
Liberty thereafter attempted to draft a proposed final judgment. Rainbow objected to Liberty's proposed final judgment because, inter alia, the circuit court had not resolved all of the issues and claims raised in Liberty's appeal. SHPDA also objected to Liberty's proposed final judgment and submitted its own proposed final judgment, which would have granted judgment in favor of Liberty on its first claim for relief relating to Administrator Terry and dismissed all other claims. Liberty subsequently submitted a revised proposed final judgment.
While Liberty's revised proposed final judgment was pending, the circuit court sua sponte requested supplemental briefing on, inter alia, " whether all remaining issues should be decided on the merits, including issues related to Waikiki Resort Hotel ... and/or Hui Malama Aina O Ko'olau [ . ] " Following the receipt of supplemental briefing and a hearing, the circuit court issued an order affirming the Reconsideration Decision in its entirety. The circuit court reiterated its conclusion that the Reconsideration Committee erred in failing to disqualify Administrator Terry, but held that the error was harmless pursuant to Waikiki Resort Hotel. The circuit court also affirmed the Reconsideration Committee's retention of Anne Trygstad on the ground that the Reconsideration Committee's determination that Dr. Talbot was not a party or a party's representative was not clearly erroneous. Finally, the circuit court concluded that Liberty was judicially estopped from contesting its burden of proof because it had represented to the Reconsideration Committee that Liberty bore the burden of proof. The circuit court also affirmed on other issues unrelated to this appeal.
The circuit court filed its Final Judgment on December 13, 2011, entering judgment in favor of SHPDA and Rainbow and against Liberty. Liberty timely filed a notice of appeal on January 10, 2012.
C. Appeal to this court 
Liberty raises four points of error in its appeal:
(1) The Circuit Court abused its discretion by reconsidering three of its prior orders and entertaining Rainbow's belated argument that the Reconsideration Committee's failure to disqualify Terry [130 Hawai'i 102]
should be excused as harmless error under Waikiki.
(2) The Circuit Court erred in concluding that the Reconsideration Committee's error in failing to disqualify Ronald Terry was harmless.[[]
(3) The Reconsideration Committee erred in refusing to disqualify Anne Trygstad from serving on the Reconsideration Committee, and the Circuit Court erred in upholding this decision.
(4) The Reconsideration Committee erroneously placed the burden of proof on Liberty rather than Rainbow.[]
Rainbow raises a single point of error in its appeal: " The circuit court erred when it determined in its December 13, 2011 Order that Administrator Terry should have been disqualified due to the application of HAR § 11-1-25 and based its Final Judgment on that portion of the December 13, 2011 Order." (Record citations omitted). Rainbow argues that " HRS [c]hapter 323D, and HRS § 323D-47 in particular, make clear that the SHPDA Administrator can and should participate in the Decision on the Merits and serve on the Reconsideration Committee that reviews such decisions." (Emphasis in original).
Although " Rainbow agrees with the ultimate ruling of the circuit court in entering Final Judgment in favor of Rainbow," it nonetheless seeks review of its point of error to ensure that " Liberty (and others) cannot use the circuit court's erroneous holding regarding HAR § 11-1-25 and the Administrator's ‘ disqualification’ from the Reconsideration Committee as law of the case here or through offensive use of collateral estoppel in any other proceedings."
SHPDA did not file an appeal or cross-appeal, but did file a unified answering brief in response to both Liberty's and Rainbow's appeals. SHPDA's answering brief generally supported Rainbow's arguments in both the appeal and the cross-appeal.
II. Standards of Review
A. Review of agency decisions
Review of a decision made by the circuit court upon its review of an administrative decision is a secondary appeal. Ahn v. Liberty Mut. Fire Ins. Co., 126 Hawaii 1, 9, 265 P.3d 470, 478 (2011) (citation omitted). The circuit court's decision is reviewed de novo. Id. The agency's decision is reviewed under the standards set forth in HRS § 91-14(g). Id. HRS § 91-14(g) (1993) provides:
(g) Upon review of the record the court may affirm the decision of the agency or remand the case with instructions for further proceedings; or it may reverse or modify the decision and order if the substantial rights of the petitioners may have been prejudiced because the administrative findings, conclusions, decisions, or orders are:
(1) In violation of constitutional or statutory provisions; or
(2) In excess of the statutory authority or jurisdiction of the agency; or
(3) Made upon unlawful procedure; or
(4) Affected by other error of law; or
(5) Clearly erroneous in view of the reliable, probative, and substantial evidence on the whole record; or
(6) Arbitrary, or capricious, or characterized by abuse of discretion or [130 Hawai'i 103]
clearly unwarranted exercise of discretion.
" Under HRS § 91-14(g), conclusions of law are reviewable under subsections (1), (2), and (4); questions regarding procedural defects under subsection (3); findings of fact under subsection (5); and an agency's exercise of discretion under subsection (6)." Sierra Club v. Office of Planning, 109 Hawaii 411, 414, 126 P.3d 1098, 1101 (2006) (citation, internal quotation marks and brackets omitted).
B. Statutory interpretation
" Statutory interpretation is a question of law reviewable de novo." Kaleikini v. Yoshioka, 128 Hawaii 53, 67, 283 P.3d 60, 74 (2012) (citation omitted).
C. Interpretation of agency rules
General principles of statutory construction apply in interpreting administrative rules. Id. " As in statutory construction, courts look first at an administrative rule's language. If an administrative rule's language is unambiguous, and its literal application is neither inconsistent with the policies of the statute the rule implements nor produces an absurd or unjust result, courts enforce the rule's plain meaning." Id. (citation omitted). While an agency's interpretation of its own rules is generally entitled to deference, this court " does not defer to agency interpretations that are plainly erroneous or inconsistent with the underlying legislative purpose." Id. (citation and internal quotation marks omitted).
A. Administrator Terry was not disqualified from participating in the Reconsideration Decision
In order to determine whether Administrator Terry was disqualified from participating in the Reconsideration Decision, this court must consider whether the Department of Health (DOH) rule regarding disqualification, HAR § 11-1-25(a)(4), is applicable to the Reconsideration Committee members. As explained in detail below, HAR § 11-1-25(a)(4) prevents a hearings officer from hearing or deciding a contested case in which he or she " substantially participated in making the decision or action contested[.]" Because Administrator Terry made the initial decision to approve Rainbow's CON application, Liberty argues that he was disqualified from the reconsideration hearing.
Rainbow argues that this rule is inapplicable here because it would conflict with HRS § 323D-47, which, Rainbow argues, requires the Administrator to issue the initial decision on a CON application, chair any resulting reconsideration committee, and participate in the reconsideration decision. Rainbow also argues that the more specific SHPDA disqualification rule, HAR § 11-185-32, applies in lieu of the DOH disqualification rule, and would not require Administrator Terry's disqualification in the circumstances of the instant case.
Liberty argues that there is no conflict between the DOH rule and HRS § 323D-47 because nothing in HRS § 323D-47 requires the SHPDA Administrator to personally issue a decision on a CON application. In addition, Liberty argues that the SHPDA disqualification rule does not displace the DOH rule because it covers only a narrow category of disqualifications and does not conflict with the DOH rule.
As set forth below, the legislature, in enacting HRS § 323D-47, envisioned that the SHPDA Administrator would participate in both the initial decision on a CON application and any subsequent reconsideration decision. However, HAR § 11-1-25(a)(4) would preclude the SHPDA Administrator from participating in both of these decisions. Accordingly, HAR § 11-1-25(a)(4) conflicts with HRS § 323D-47, and would be invalid if applied in the circumstances presented here. Moreover, HAR § 11-1-25(a)(4) is inapplicable because the more specific disqualification rule contained in HAR § 11-185-32 governs [130 Hawai'i 104]
SHPDA hearings officers in CON proceedings. Liberty does not argue that Administrator Terry should have been disqualified pursuant to HAR § 11-185-32, and nothing in this rule would appear to require Administrator Terry's disqualification. Accordingly, Administrator Terry was not disqualified from participating in the Reconsideration Decision.
1. The legislature envisioned that the SHPDA administrator would issue the initial decision on a CON application and participate in any reconsideration of that decision
HRS § 323D-47 governs requests for reconsideration of SHPDA's decision on a CON application, and provides in relevant part:
The state agency may provide by rules adopted in conformity with chapter 91 for a procedure by which any person may, for good cause shown, request in writing a public hearing before a reconsideration committee for purposes of reconsideration of the agency's decision. The reconsideration committee shall consist of the administrator of the state agency and the chairpersons of the statewide council, the review panel, the plan development committee of the statewide council, and the appropriate subarea health planning council. The administrator shall be the chairperson of the reconsideration committee. A request for a public hearing shall be deemed by the reconsideration committee to have shown good cause, if:
(5) The decision of the administrator differs from the recommendation of the statewide council.
Rainbow argues that this provision requires the SHPDA administrator to sit in reconsideration of his or her own decision because it requires that the administrator issue the initial decision on a CON application, as well as " be a member of, [and] also serve as the chairperson of, any Reconsideration Committee tasked with deciding a challenge to a decision by the Administrator which differs from the recommendation of the SHCC." Liberty argues that this provision does not require the administrator to personally issue the initial decision on a CON application and, thus, does not require that the administrator sit in reconsideration of his or her own decision.
Liberty is correct that nothing in HRS § 323D-47, nor any other provision of chapter 323D, explicitly states that the administrator must personally issue the initial decision on a CON application. See HRS chapter 323D. Rather, HRS chapter 323D repeatedly references the CON being issued by the " state agency," see, e.g., HRS § 323D-43(a); HRS § 323D-44(b), meaning SHPDA, see HRS § 323D-2. Similarly, the relevant administrative rules state that the decision on the merits will be issued by " the agency," and do not specify that the agency must act through its administrator. HAR § 11-186-70.
Nevertheless, the plain language of HRS § 323D-47 reflects the legislature's understanding that the administrator is responsible for issuing the decision on a CON application on behalf of the agency. Pursuant to HRS § 323D-47, a person may request a hearing " for purposes of reconsideration of the agency's decision" on a CON application where, inter alia, " [t]he decision of the administrator differs from the recommendation of the statewide council." (Emphasis added). ...