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Client Network Services, Inc. v. State

Court of Appeals of Louisiana, First Circuit

April 29, 2015

CLIENT NETWORK SERVICES, INC.
v.
STATE OF LOUISIANA; STATE, DEPARTMENT OF HEALTH AND HOSPITALS; KATHY H. KLIEBERT, IN HER CAPACITY AS INTERIM SECRETARY, DEPARTMENT OF HEALTH AND HOSPITALS; STATE, DIVISION OF ADMINISTRATION; STATE, DIVISION OF ADMINISTRATION, OFFICE OF STATE PURCHASING; KRISTY H. NICHOLS, IN HER CAPACITY AS COMMISSIONER OF ADMINISTRATION; SANDRA G. GILLEN, IN HER CAPACITY AS DIRECTOR OF STATE PURCHASING; THE HONORABLE BOBBY JINDAL, IN HIS CAPACITY AS GOVERNOR, STATE OF LOUISIANA

On Application for Supervisory Review from the Nineteenth Judicial District Court In and for the Parish of East Baton Rouge State of Louisiana Docket Number 621, 271 The Honorable Timothy E. Kelley, Judge Presiding

Michael W. McKay Lewis 0. Unglesby Baton Rouge, LA & Paul J. Masinter Michael Q. Walsh, Jr., Justin P. Lemaire New Orleans, LA Counsel for Plaintiff/Respondent, Client Network Services, Inc.

Richard F. Zimmerman, Jr. Randal J. Robert Julie M. McCall Elizabeth B. Murrill David Caldwell Baton Rouge, LA Counsel for Defendant/Relator, State of Louisiana through the Division of Administration, Kristy Nichols, In her Official Capacity as the Commissioner of Administration, The State through the Office of State Purchasing and Sandra Gillen, In her Capacity as Director of State Purchasing

M. Brent Hicks Juston M. O'Brien L. Ashley Bynum Kimberly L. Humbles Baton Rouge, LA Counsel for Defendant/Relator, Louisiana Department of Health & Hospitals and Kathy H. Kliebert, In her Capacity as Secretary Department of Health & Hospitals

Jimmy R. Faircloth, Jr. Barbara Bell Melton Jonathan Ringo Alexandria, LA Counsel for Defendant/Relator, Honorable Bobby Jindal, in his Capacity as Governor, State of Louisiana

BEFORE: GUIDRY, MCDONALD, WELCH, DRAKE, AND HOLDRIDGE, JJ.

GUIDRY, J.

This writ application comes before us on remand from the Louisiana Supreme Court for briefing, argument, and full opinion. Two principal issues are raised by the application:

I. Whether the district court has original subject matter jurisdiction over a breach of contract suit where the underlying contract was entered into pursuant to the Louisiana Procurement Code; and
II. If the district court does possess original subject matter jurisdiction over the suit, whether the doctrine of primary jurisdiction nevertheless requires the plaintiff to first present its claim to the administrative agency, thereby rendering this suit premature.

Finding that the district court possesses original subject matter jurisdiction over this matter and additionally finding that the district court did not abuse its discretion in denying the exception of prematurity, we deny the defendants' writ application.

FACTUAL BACKGROUND AND PROCEDURAL HISTORY

This case arises out of the termination of a nearly $200 million contract between the Louisiana Department of Health and Hospitals ("DHH") and Client Network Services, Inc. ("CNSI"). The contract, entitled the Agreement for the Operation and Enhancement of the Louisiana Medicaid Management Information System through a Fiscal Intermediary Type Arrangement ("the LMMIS Agreement"), tasked CNSI with, inter alia, creating a replacement system that would process claims from Medicaid providers and issue payments to providers. The LMMIS Agreement also indicated that the Louisiana Procurement Code, La. R.S. 39:1551, et seq. ("the Procurement Code"), gave DHH the authority to enter into the contract.

The contract took effect on February 15, 2012, at which time CNSI began performing under the terms of the LMMIS Agreement. A little over a year later, on March 21, 2013, the Director of State Purchasing notified CNSI in a letter that she was terminating the LMMIS Agreement immediately for cause; the letter did not cite any reasons for the termination. Shortly thereafter, the Commissioner of Administration was quoted in The Advocate as saying: "[b]ased on consultation with the Attorney General's Office, today I am terminating the state's contract with CNSI, effective immediately." In this manner, both the Director of State Purchasing and the Commissioner took credit for the decision to terminate the contract. The Commissioner was also quoted in The Advocate as saying that, "[w]e have zero tolerance for wrongdoing, and we will continue to cooperate fully with any investigation." Soon thereafter, the Division of Administration's General Counsel made a claim against CNSI's $6 million performance bond.

After the termination of the contract was announced, a meeting of the parties was arranged at CNSI's request, and the meeting was scheduled to take place on Monday, April 29, 2013. On the Friday before the meeting, the Director of State Purchasing sent a letter to CNSI's counsel setting forth for the first time specific reasons for the termination of the contract.[1] At the meeting, CNSI presented a settlement proposal. The proposal was later rejected by the State in a letter dated May 2, 2013. In that same letter, the State furthermore claimed it was entitled to reimbursement of a "significant portion" of the approximately $17 million the State had already paid CNSI.

After its settlement proposal was rejected, CNSI initiated this lawsuit against DHH, the Division of Administration (DOA), and the Office of State Purchasing, among other state entities and state officials (hereafter all collectively referred to as "the State Defendants") on May 6, 2013. In its petition, CNSI sought monetary damages for bad faith breach of contract and also sought a judgment declaring that the defendants lacked valid grounds to terminate the LMMIS Agreement for cause.[2]

The State Defendants responded to the suit by filing the exceptions that are the subject of this opinion: a declinatory exception raising the objection of lack of subject matter jurisdiction and a dilatory exception raising the objection of prematurity. By the exceptions, [3] the State Defendants sought to have the suit dismissed on grounds that CNSI had improperly failed to complete the administrative procedure required by the Procurement Code and improperly failed to complete the dispute resolution procedure required by the LMMIS Agreement prior to filing its suit in the district court. After CNSI filed a memorandum in opposition to the exceptions, the State Defendants filed a motion to strike certain claims of CNSI, asserting that CNSI was improperly challenging the constitutionality of the Procurement Code.

The provisions of the Procurement Code that the State Defendants rely upon to contend the dispute should have been submitted to the DOA before filing suit in district court are set forth in La. R.S. 39:1673, La. R.S. 39:1685, and La. R.S. 39:1691(C), which provide in pertinent part that an aggrieved contractor must file a complaint with the chief procurement officer and appeal to the commissioner before the contractor may appeal to the district court:

§ 1673. Authority to resolve contract and breach of contract controversies other than professional, personal, consulting, and social services contracts
A. Applicability. This Section applies to controversies between the state and a contractor and which arise under or by virtue of a contract between them. This includes without limitation controversies based upon breach of contract, mistake, misrepresentation, or other cause for contract modification or rescission. Any contractor who seeks a remedy with regard to such controversy shall file a complaint with the chief procurement officer,
C. Decision. If such a claim or controversy is not resolved by mutual agreement, the chief procurement officer or his designee shall promptly issue a decision in writing....
E. Finality of decision. The decision under Subsection C of this Section shall be final and conclusive unless one of the following applies:
(1)The decision is fraudulent.
(2) The contractor has timely appealed administratively to the commissioner in ...

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