American Federation of State, County & Municipal Employees v. Department of Mental Health

206 Mich. App. 382 (1994) 522 N.W.2d 657 AMERICAN FEDERATION OF STATE, COUNTY AND MUNICIPAL EMPLOYEES, AFL-CIO v. DEPARTMENT OF MENTAL HEALTH Docket No. 140834. Michigan Court of Appeals. Submitted October 12, 1993, at Detroit. Decided August 1, 1994, at 9:30 A.M. Webb, Hildebrandt & Paton, P.C. (by L. Roger Webb and Alison L. Paton), for the plaintiffs. *384 Frank J. Kelley, Attorney General, Thomas L. Casey, Solicitor General, and Gary P. Gordon and Richard P. Gartner, Assistant Attorneys General, for the Department of Mental Health. Before: JANSEN, P.J., and CONNOR and R.L. ZIOLKOWSKI,[*] JJ. JANSEN, P.J. Plaintiffs appeal as of right from an order of the Ingham Circuit Court granting defendant Department of Mental Health partial summary disposition pursuant to MCR 2.116(C)(10) and 2.116(I)(2). We reverse. The State of Michigan is responsible for providing mental health services. Const 1963, art 8, § 8. The Mental Health Code, MCL 330.1001 et seq.; MSA 14.800(1) et seq., delineates the powers and duties of the Department of Mental Health (DMH) and requires the DMH to ensure that adequate and appropriate mental health services are available to all citizens in this state. The DMH is permitted to operate such facilities directly or may contract with a nonpublic entity to fulfill those duties or powers granted by statute to the DMH. MCL 330.1116(j); MSA 14.800(116)(j). Pursuant to this statutory authority, the DMH has utilized a standard contract (the DMH-3800B contract) to contract with private group residential home providers in which developmentally disabled persons are placed. On August 13, 1990, the DMH issued a proposed guideline revision that would establish a new contract for the private group-home providers. The guideline included a new standard DMH-3800B contract, which is incorporated by reference as part of the guideline. The proposed contract contained a number of significant *385 changes. It is undisputed that private group-home providers must enter into the contract in order to do business with the DMH. Neither the private provider nor the DMH staff have the power to modify any terms of the new DMH-3800B contract. Plaintiffs Lola DeBois and Shirley Towns are employed by Michigan Community Service, Inc., a nonprofit corporation that provides specialized residential services for developmentally disabled adults. Plaintiff American Federation of State, County and Municipal Employees, AFL-CIO, (AFSCME) is a voluntary, unincorporated association that represents public employees. The AFSCME has been seeking to represent direct-care workers, such as DeBois and Towns, and has received from the Michigan Employment Relations Commission, the Employment Relations Board, and this Court favorable rulings finding the DMH to be a joint employer. Michigan Council 25, AFSCME v Louisiana Homes, Inc, 192 Mich App 187; 480 NW2d 280 (1991), vacated 441 Mich 883 (1992), aff'd on remand Michigan Council 25, AFSCME v Louisiana Homes, Inc (On Remand), 203 Mich App 213; 511 NW2d 696 (1993). Correspondence issued by the director of the DMH states that the DMH'S motive in attempting to change the provisions of the standard contract is to avoid the effect of the Louisiana Homes rulings. Plaintiffs filed a two-count complaint on October 29, 1990. Count I concerned defendant Civil Service Commission and is not relevant to the instant appeal. Count II sought declaratory and injunctive relief against the DMH, requesting the trial court to enjoin the DMH from instituting revisions of departmental guidelines regarding standard contracts between the DMH and private organizations providing residential mental health services. *386 Plaintiffs contend that the contract was actually an administrative rule and that the DMH was required to follow the formal rule-making procedures of the Administrative Procedures Act, MCL 24.201 et seq.; MSA 3.560(101) et seq. On November 29, 1990, plaintiffs requested a preliminary injunction, which was granted by the trial court. The trial court subsequently denied the DMH's motion to vacate the preliminary injunction. Plaintiffs then filed a motion for summary disposition regarding count II of the complaint. The trial court denied plaintiffs' motion for summary disposition, but granted summary disposition for the DMH pursuant to MCR 2.116(C)(10) and MCR 2.116(I)(2). As a preliminary matter, we must first determine whether plaintiffs have standing to bring this action. Although the DMH raised this issue below, the trial court did not decide it. Both parties have briefed thoroughly this issue before this Court. We, therefore, will review this issue, because it involves a question of law for which the facts necessary for its resolution have been presented. Gillette Co v Dep't of Treasury, 198 Mich App 303, 311; 497 NW2d 595 (1993). Contrary to the DMH's argument, standing and subject-matter jurisdiction are not the same. Dep't of Social Services v Carter, 201 Mich App 643, 646; 506 NW2d 603 (1993); Altman v Nelson, 197 Mich App 467, 472; 495 NW2d 826 (1992). It is clear that plaintiffs have standing in this case, because they have shown a substantial interest and a personal stake in the outcome of the controversy. Altman, p 475. The AFSCME has a substantial interest and personal stake in the outcome of this case, because the DMH's director, in letters, has stated that the changes in the contract are designed to avoid the ruling that the DMH is a joint employer and that *387 the AFSCME, therefore, may organize and represent the direct-care workers. Plaintiffs Lola DeBois and Shirley Towns, as direct-care workers for one of the private group-home providers, have a substantial interest and personal stake in the outcome of this case, because the changes in the contract directly affect the terms and conditions of their employment. Accordingly, plaintiffs have standing to bring this suit. Next, we must determine if the guideline and standard contract constitute a rule within the meaning of the APA and, if so, whether the DMH's attempt to change the standard contract violates the promulgation procedures set forth in the APA. Because the trial court granted summary disposition to the DMH pursuant to MCR 2.116(C)(10), our review of this issue is de novo, because we must review the record to determine whether the DMH was entitled to judgment as a matter of law. Michigan Mutual Ins Co v Dowell, 204 Mich App 81, 86; 514 NW2d 185 (1994). Section 7 of the APA defines rule as: "Rule" means an agency regulation, statement, standard, policy, ruling, or instruction of general applicability that implements or applies law enforced or administered by the agency, or that prescribes the organization, procedure, or practice of the agency, including the amendment, suspension, or rescission thereof.... [MCL 24.207; MSA 3.560(107)]. The trial court found that the guideline and standard contract is not a rule on the basis of the provision excluding from the definition of a rule the following: A decision by an agency to exercise or not to exercise a permissive statutory power, although *388 private rights or interests are affected. [MCL 24.207(j); MSA 3.560(107)(j)]. Our Supreme Court has noted that "rule" is defined broadly to defeat agencies' inclinations to label as bulletins, announcements, guides, and interpretive bulletins those directives that are actually rules. Detroit Base Coalition for the Human Rights of the Handicapped v Dep't of Social Services, 431 Mich 172, 183; 428 NW2d 335 (1988). Further, the situations in which § 7(j) exemptions have been found to apply are those in which explicit or implicit authorization for the action in question have been found. Detroit Base Coalition, pp 187-188. The DMH claims that the above exemption applies pursuant to MCL 330.1116(j); MSA 14.800(116)(j), which states that the DMH "may enter into any agreement, contract, or arrangement with any public or nonpublic entity that is necessary or appropriate to fulfill those duties or exercise those powers that have by statute been given to the department." This provision allows the DMH to contract with private group-home providers; however, the issue here is whether the contract itself, which must be utilized by the private group-home providers and may not be modified, constitutes a rule within the meaning of the APA. Thus, while the act of contracting with a private group-home provider is permissive, the terms of the contract and the requirement that the private group-home provider abide by the contract are not. Spear v Michigan Rehabilitative Services, 202 Mich App 1, 4-5; 507 NW2d 761 (1993). The standard contract is very specific. It is seventeen pages long and provides, inter alia, for funding of the group homes, discrimination policies; *389 compliance with DMH rules, guidelines, and directives; submission of financial statements; requirements regarding direct-care worker training and staff levels; requirements regarding patient rights and reporting requirements, and personnel policies and procedures including bonuses and evaluations. The guideline, which incorporates the standard contract by reference, is specifically intended to rescind and replace the former standard contract. Therefore, the guideline and standard contract, which must be read together, are not merely an explanatory guideline that would not be subject to the promulgation procedures of the APA. Jordan v Dep't of Corrections, 165 Mich App 20, 25; 418 NW2d 914 (1987). Accordingly, while the DMH's decision to contract with private group-home providers is a permissive exercise of its statutory power, the guideline and the standard contract, which is required to be entered into by a private group-home provider and may not be modified, are not exempt from the definition of a rule and must be promulgated as a rule pursuant to the APA. Spear, supra, p 5; Palozolo v Dep't of Social Services, 189 Mich App 530; 473 NW2d 765 (1991) (adopting Judge SHEPHERD's dissenting opinion in Pyke v Dep't of Social Services, 182 Mich App 619, 633-636; 453 NW2d 274 (1990). Because the DMH failed to promulgate the guideline and standard contract pursuant to the APA, its attempt to revise the standard contract is without legal authority or effect. We reverse the trial court's grant of summary disposition in favor of the DMH and remand for the court to enter summary disposition in favor of plaintiffs. We do not retain jurisdiction. R.L. ZIOLKOWSKI, J., concurred. CONNOR, J. (dissenting). I dissent. I would hold *390 that the Department of Mental Health (DMH) did not violate the Administrative Procedures Act, MCL 24.201 et seq.; MSA 3.560(101) et seq., by revising the standard contract provisions at issue without treating the revision as the making of a rule within the meaning of the APA. Generally, a "rule" is an agency policy of general applicability that prescribes the practice of the agency. MCL 24.207; MSA 3.560(107). However, the APA definition of rule specifically excludes "guidelines" that are promulgated by the agency. See MCL 24.207(h); MSA 3.560(107)(h). "Guidelines" are declarations of agency policy binding on the agency issuing them, but not on any other person, which do not have the force or effect of law. MCL 24.103(6); MSA 3.560(103)(6). Guidelines necessarily prescribe some agency practice. I am satisfied that the guideline that accompanied the adoption of new standard contract language is actually a guideline and not a rule. It is binding only on the DMH and on no other person. Moreover, it does not purport to have the force or effect of law: it expressly allows for the director of the DMH to authorize departures from the standard contract language. I am also satisfied that adopting standard contract language is not rulemaking. Standard contract language is binding on no one, neither the DMH nor anyone else, until someone agrees to be bound by the language. Even taking a position that no deviation from the language will be permitted is simply hard bargaining: parties seeking to contract with the DMH are free to counteroffer with any language they wish. The DMH has the statutory power to contract as is appropriate. MCL 330.1116(j); MSA 14.800(116)(j). The DMH's decision to contract with private group providers is a permissive *391 exercise of its statutory power, and the department has discretion to determine what is necessary or appropriate language in the contract to fulfill the duties imposed on it. If an agency's decision whether to exercise such statutory power is not rulemaking, MCL 24.207(j); MSA 3.560(107) (j), then I agree with the trial court that the agency's decision regarding the terms under which it will exercise that power is not rulemaking. I would affirm. NOTES [*] Recorder's Court judge, sitting on the Court of Appeals by assignment.