Kinston condemnation ruling could affect state Supreme Court CON case

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  • A legal challenge to North Carolina's certificate-of-need law could be affected by Friday's state Supreme Court ruling in a separate case dealing with property condemnation in Kinston.
  • The high court has ordered parties in the CON case to submit new briefs explaining the potential impact of the Kinston case. Parties in the CON dispute also must provide additional information about whether the case challenges the CON law in its entirety.
  • Supreme Court justices heard oral arguments on April 17 in the CON dispute.

A recent state Supreme Court ruling in a lawsuit over Kinston’s property condemnation practices could have an impact on a separate case involving state health care regulation.

The state Supreme Court issued an order Friday setting a 30-day deadline for new briefs in the case Singleton v. North Carolina Department of Health and Human Services. The case challenges North Carolina’s certificate-of-need law.

Supreme Court justices want the new briefs from plaintiff Dr. Jay Singleton and state government defendants to answer two new questions.

*“Whether plaintiffs were required to exhaust administrative remedies in light of this Court’s decision in … Askew v. City of Kinston.”

*”Whether plaintiffs’ constitutional claims, based on the facts alleged in the complaint, are facial challenges, as-applied challenges, or both, and what implications this has for our review of the Court of Appeals’ decision and the trial court’s order.”

A unanimous high court issued its decision Friday in the Askew case. Justices rejected the argument that two Kinston residents needed to “exhaust administrative remedies” before challenging Kinston’s property condemnation practices as racially discriminatory.

Much of the Askew decision focused on a 1992 precedent case called Corum. It allows plaintiffs in North Carolina to file suit against the government for violations of fundamental state constitutional rights.

Facial constitutional challenges argue that a law is unconstitutional “on its face.” In other words, there is no circumstance in which the law should survive judicial review. An “as-applied” challenge labels a law unconstitutional under the specific circumstances put forward by a specific plaintiff.

Singleton, a New Bern eye surgeon, has pursued his case through an as-applied challenge. He has not argued for courts to throw out the state’s certificate-of-need law. He has argued instead that the law is unconstitutional in his case because it blocks him from performing most eye surgeries at the office he owns.

The question of “facial” versus “as-applied” constitutional challenges has practical implications within North Carolina’s court system. Facial challenges are supposed to proceed through a three-judge trial court panel, while as-applied challenges can be heard by a single judge. Singleton’s case involved one judge at the trial court level.

The state’s high court heard oral arguments on April 17 in the Singleton case.

Singleton challenges state CON law provisions that block him from performing most eye surgeries at his own operating room. Singleton must perform those surgeries instead at CarolinaEast, a nearby hospital that holds the region’s only CON. The CON represents a form of state government permission slip.

Working with lawyers from the Institute for Justice, Singleton contends that the CON law violates his constitutional rights.

“Our constitution draws lines the legislature can’t cross,” argued IJ’s Josh Windham in April. “No monopolies. No special privileges to provide private services. No laws that restrict liberty unless it’s reasonably necessary to protect the public. No exceptions.”

The CON law “crosses these lines,” Windham argued. “It grants a single private hospital, CarolinaEast, an exclusive right to have an operating room in his area. That’s a monopoly. And even if a CON one day became available, Dr. Singleton alleged that forcing him to get a CON is not reasonably necessary to protect the public.”

“It increases costs, reduces access to care, and harms the very patients it’s supposed to help, and that violates the law of the land,” Windham added.

Lower courts have ruled against Singleton. That includes a unanimous June 2022 decision from the state Court of Appeals.

State Deputy Solicitor General Nicholas Brod represented the defendants in the case: the North Carolina Department of Health and Human Services, Gov. Roy Cooper, and Republican state legislative leaders.

Brod urged the high court to rule against Singleton again. He defended the General Assembly’s right to approve the CON law in 1978 and amend it regularly during the past 45 years.

“The General Assembly gets broad deference on disputed matters of economic policy,” Brod said.

He distinguished Singleton’s case from others in which courts have struck down occupational licensing requirements. “I just don’t think this law, which in this case is regulating the entry of someone who wants to perform surgery on people’s eyes, has anything to do with the kind of licensing laws that this court struck down regarding photographers or dry cleaners or tile layers,” Brod added. “I just think we’re in a completely different constitutional universe. Health care is different.”

Singleton is challenging the CON law as unconstitutional in his particular case. He is not asking the state Supreme Court to strike down the law in its entirety.

Much of the debate during the April oral argument focused on whether Singleton is pursuing an “as-applied” state constitutional challenge, or whether he actually seeks a “facial” constitutional challenge that would kill the CON law.

“I understand your prayer for relief asks for a declaratory judgment as to this plaintiff only, but the grounds for that judgment are grounds that are generally applicable to everyone,” said Justice Anita Earls. “What types of plaintiffs or what types of medical providers … would still be subject to this requirement if we grant relief on the grounds you are asserting?”

Debate also focused on whether the state could end the case by granting Singleton a CON today.

“How does that address the issue?” asked Justice Trey Allen. “The injury is requiring him to go through the process at all regardless of the outcome.”

Justice Richard Dietz questioned the state’s argument that Singleton should have sought a remedy from DHHS before heading to court. Dietz compared Singleton’s case to a hypothetical First Amendment case.

“If the government created what they called the Ministry of Religion and they said to people, ‘We’re really concerned about people going all over the place and praying here, things like that. So come to us and tell us how you want to engage in the free exercise of religion. We’ll give you a certificate. But if we think your religion’s not one of the valid ones — we don’t think this is legit — we’ll say no,’” Dietz said. “In that circumstance, we would think it would be nonsensical to say ‘Why didn’t you go apply for the permit? Why did you argue that this entire thing is unconstitutional?’”

Near the end of the hearing, Allen and Dietz offered two contrasting takes on the way the court could rule.

“Isn’t your point that if it’s debatable, we have to uphold the law, that this is an incredibly complex area of the law, and courts aren’t really equipped to determine what the impact would be on the availability of care if the law is struck down?” Allen asked Brod.

“On the flip side, what if they came in with a bunch of evidence that showed in other states that rural hospitals — when they started having competition — were not impacted in any way?” Dietz responded. “And, in fact, it had the opposite effect. The increase in that health care meant people would start going to the hospital more, and they actually made more money.”

“At the same time, they came up with some evidence during discovery that powerful lobbying groups really profited from the system the way it exists now, and so they were able to prove that actually this law seems to be really about cronyism,” Dietz continued. “Doesn’t that fall directly into the heart of what … the framers wanted the monopolies clause to prohibit?”

Singleton targeted the state’s defense of CON in a February court filing.

“There are some choices the legislature can’t make. Try as the State might to frame this case as an untouchable policy debate, the State’s 88-page brief never really grapples with a basic truth: Some policies violate the Constitution,” Singleton’s lawyers wrote. “Laws that exceed the police power are not ‘law[s] of the land.’ Laws that grant ‘exclusive or separate … privileges’ or ‘monopolies’ are invalid.”

“This Court has a duty to say when the legislature has crossed these lines,” the brief continued. “The separation of powers demands nothing less.”

Singleton “is not required to slog through the CON process before he can challenge the CON requirement,” his lawyers argued.

“Economic laws must be ‘reasonably necessary’ to protect the public. Dr. Singleton alleged that, as applied, the CON law does not protect — and in fact harms — real patients,” his lawyers wrote. “The State’s contrary arguments simply fight the posture of the case. And they reveal, not a respect for the separation of powers (as the State claims), but a desire to prevent this Court from playing its part in that separation. The Court should decline.”

“The legislature can’t grant exclusive rights to provide private services — even if it thinks those privileges are a good idea,” the brief added.

The surgeon’s lawyers challenged the argument that Singleton should have sought a CON before filing suit. “Dr. Singleton alleges the CON requirement is unconstitutional. Forcing him to beg DHHS to make a CON available, to apply for that hypothetical CON, and then to spend years and thousands of dollars battling with CarolinaEast for that CON is not a ‘remedy’ for the CON requirement,” the brief explained.

Lawyers from the state Department of Justice urged North Carolina’s highest court in January to reject Singleton’s legal challenge.

“Healthcare is one of the most complex, heavily regulated, and politically contested markets in the economy,” wrote state government lawyers. “Whether the healthcare system appropriately balances costs, quality, and access — among many other factors — is a notoriously challenging and critically important policy debate.”

Justice Department lawyers represent the state Department of Health and Human Services, DHHS Secretary Kody Kinsley, Cooper, and state legislative leaders. DHHS oversees the CON process. The CON law limits who can build new healthcare facilities, add beds to existing hospitals, and purchase large-scale medical equipment.

“The legal question here, however, is not whether the State’s certificate-of-need law is the best healthcare policy. The question is whether the law passes the deferential review that this Court applies to economic laws. It does,” the Justice Department brief continued.

“As with all policy debates, some would go further, arguing that the CON law should be repealed in its entirety. They contend that by requiring providers to get state approval before offering certain new health services, CON laws impose unnecessary barriers to entry, limit consumer choice, raise costs, and harm competition,” state lawyers added.

“In keeping with these objections, legislation that would repeal the CON law has been introduced in the General Assembly at least six times in the last six years,” the brief continued. “To date, however, this repeal legislation has not garnered enough support to pass.”

“Plaintiffs here ask the Court to stop this democratic debate about a disputed matter of economics and declare them the winners,” state government lawyers argued. “But this Court’s precedents on judicial review of economic regulations provide the Court with a far more modest role: to determine whether the CON law is reasonable. As shown by the General Assembly’s findings in the text of the CON law itself, the CON law easily passes this deferential review.”

The John Locke Foundation, which oversees Carolina Journal, supports Singleton’s legal fight against state regulations that block him from performing procedures in his own building.

Locke and constitutional law scholar John Orth filed a joint friend-of-the court brief in the case in November 2023. The Goldwater Institute also submitted a friend-of-the-court brief supporting Singleton.

“Locke has opposed North Carolina’s Certificate of Need (CON) law for many years, not only because it is unconstitutional and violates the rights of North Carolinians, but also because it directly harms patients, employers, insurers, and taxpayers by making health care more expensive and less accessible,” according to the brief from Locke and Orth, a constitutional law professor who taught at the University of North Carolina School of Law from 1978 to 2021.

Orth authored the book “The North Carolina Constitution” in 1993. His co-author for an updated version of that book is state Supreme Court Chief Justice Paul Newby.

The joint Locke/Orth brief addresses a legal issue called “tiers of scrutiny.” It refers to the different types of review that a court might apply to a challenged law. Only laws addressing a “fundamental” right face the strictest form of scrutiny.

North Carolina adopted the “tiers of scrutiny” approach during the second half of the 20th century, according to the Locke/Orth brief.

“The present case illustrates what happens when state courts casually apply federal tiers of scrutiny doctrine to claims arising under state constitutions without taking into consideration the text and the history of the state constitution itself,” the brief argued. “That practice, which is sometimes called ‘lockstepping,’ can lead to dangerous error, as it has in this case.”

“In the decision under review, the Court of Appeals treated the plaintiffs’ claims under the law of the land, exclusive emoluments, and anti-monopoly clauses of the North Carolina Constitution as if they were based on a vaguely defined right to substantive due process,” Locke and Orth argued. “Following federal tiers of scrutiny practice, it assumed that, as species of economic regulation, the CON law is subject only to minimal, rational basis scrutiny, and instead of conducting its own review to determine whether the rational basis test was satisfied, it simply deferred to the legislative findings that the General Assembly had appended to the current version of the CON law.”

“All of that was error. The plaintiffs’ claims in this case are not based on a vaguely defined right to substantive due process. They are, instead, based on what the North Carolina Constitution explicitly declares to be ‘great, general, and essential principles of liberty and free government,’” the brief argued. “Not only are those principles clearly defined and affirmed in the Constitution itself; they also have deep historical roots in our state. By any definition, therefore, those principles and the rights they protect are fundamental.”

“By failing to recognize that the plaintiffs’ claims are based on fundamental principles protecting fundamental rights, the Court of Appeals committed a dangerous error,” Locke and Orth argued. “If its reasoning is allowed to stand, it will mean that the General Assembly has effectively nullified several express provisions of the state constitution simply by enacting a statute with an appended list of legislative findings. That cannot be right.”

More than a year after Singleton asked North Carolina’s highest court to take up his challenge of the CON law, the court answered yes.

An order issued in September 2023 confirmed that the North Carolina Supreme Court would hear Singleton’s case. Singleton had appealed to the high court in August 2022.

Singleton’s state Supreme Court appeal followed the state Court of Appeals’ unanimous June 2022 decision dismissing his case.

The CON case presents three issues for the NC Supreme Court’s consideration, according to an August 2022 court filing.

“Whether the CON law, as applied, violates the law of the land clause (Art. I, § 19) of the North Carolina Constitution,” according to Singleton’s lawyers. “This issue raises substantial questions about the importance of economic liberty, what test applies in substantive challenges under the clause, and whether facts matter under that test.”

“Whether the CON law, as applied, violates the anti-special privileges clause (Art. I, § 32) of the North Carolina Constitution,” the brief added. “This issue raises a substantial question about how the clause applies to special economic privileges.”

“Whether the CON law, as applied, violates the anti-monopoly clause (Art. I, § 34) of the North Carolina Constitution,” the filing listed as the third issue. “This issues raises a substantial question about how the clause applies when the government grants an exclusive right to provide a service.”

Singleton’s lawyers reminded the state’s highest court that it struck down CON restrictions once before, in 1973. Five years later, the General Assembly approved a new, “substantially similar” CON law. The state Court of Appeals then declared the original state Supreme Court ruling “moot,” and now there is “confusion” about the original decision’s status.

“The time has come for this Court to put that confusion to rest,” according to IJ attorneys. “This case alleges that the current CON law, as applied to Dr. Singleton, violates the same three provisions the original CON law violated.”

The appeal labeled the case’s facts “simple.” “Dr. Singleton owns an operating room that he could use to expand patients’ access to safe, affordable eye surgeries,” according to the court filing. “But the CON law says that only operating rooms with a CON can be used. And Dr. Singleton cannot even apply for a CON unless the state first declares a ‘need’ for a new operating room in his area — which it has not done in well over a decade.”

“In fact, the only entity in Dr. Singleton’s area to ever own an operating room CON is CarolinaEast, a hospital located two miles down the road,” according to the surgeon’s lawyers. “Dr. Singleton could provide eye surgeries at his facility for thousands of dollars less than those same procedures cost at CarolinaEast. But the CON law bars him from doing so. As a result, patients suffer while CarolinaEast profits.”

For example, Singleton could perform cataract surgeries for $1,800, while the facility fee alone at CarolinaEast reaches almost $6,000, according to the appeal.

“If excluding Dr. Singleton from the market does not benefit real patients, what does it do? The obvious: It ‘protect[s] established healthcare providers’ — namely, CarolinaEast— ‘from competition.’”