Pinnacle Health Servs. of N.C. LLC v. N.C. Dep't of Health & Hum. Servs.

• Court: Court of Appeals of North Carolina
• Decided: September 19, 2023
• Docket: 22-1042
• Status: Published

Opinion

IN THE COURT OF APPEALS OF NORTH CAROLINA

No. COA22-1042

Filed 12 September 2023

Office of Administrative Hearings, No. 21DHR4543

PINNACLE HEALTH SERVICES OF NORTH CAROLINA LLC, d/b/a CARDINAL POINTS IMAGING OF THE CAROLINAS WAKE FOREST and OUTPATIENT IMAGING AFFILIATES LLC, Petitioner,

v.

NC DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, HEALTH CARE PLANNING & CERTIFICATE OF NEED SECTION, Respondent,

and

DUKE UNIVERSITY HEALTH SYSTEM INC., Respondent-Intervenor.

Appeal by North Carolina Department of Health and Human Services,

Division of Health Service Regulation, Health Care Planning and Certificate of Need

Section, and Duke University Health System Inc. from the final decision entered 19

July 2022 by Administrative Law Judge Melissa Owens Lassiter in the Office of

Administrative Hearings. Heard in the Court of Appeals 9 August 2023.

Baker, Donelson, Bearman, Caldwell & Berkowitz, PC, by Matthew A. Fisher, for respondent-intervenor-appellant.

Attorney General Joshua H Stein, by Assistant Attorney General Kimberly Randolph, for respondent-appellant.

Fox Rothschild LLP, by Marcus C. Hewitt and Elizabeth Sims Hedrick, for petitioner-appellee.

FLOOD, Judge. PINNACLE HEALTH SERVS. OF N.C., LLC V. N.C. DEP’T HEALTH & HUM. SERVS.

Opinion of the Court

North Carolina Department of Health and Human Services and Duke

University Healthcare Systems Inc. (collectively “Respondents”) appeal from the

Final Decision of the Administrative Law Judge (“ALJ”). After careful review, we

affirm.

I. Factual and Procedural Background

Petitioners Pinnacle Health Services of North Carolina and Outpatient

Imaging Affiliates (collectively “Pinnacle”) are limited liability companies authorized

to conduct business in the state of North Carolina. Pinnacle operates medical

imaging practices in Wake County, North Carolina. Respondent-Intervenor, Duke

University Healthcare Systems (“Duke”), provides medical care, hospital care,

medical education, and medical research in North Carolina. Respondent North

Carolina Department of Health and Human Services (the “Agency”) is the

administrative body responsible for the administration of North Carolina Certificate

of Need (“CON”) law. A CON is required for certain “institutional health services,”

such as the procurement of a magnetic resonance imaging (“MRI”) scanner.

On 15 April 2021, Pinnacle filed a CON application with the Agency, proposing

to place one fixed MRI scanner in a diagnostic center in Wake Forest, North Carolina.

On the same day, Duke filed a CON application with the Agency, proposing to place

an MRI scanner in its diagnostic center in Raleigh, North Carolina. The Agency could

approve only one application. Thus, the Agency conducted a competitive review of

the applications to determine which was more effective for the purposes of awarding

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the CON. On 24 September 2021, the Agency approved Duke’s application and

denied Pinnacle’s application. The Agency determined Duke’s application was more

effective as to geographic accessibility and access to service areas for residents—two

of the factors required in a competitive review.

On 22 October 2021, Pinnacle filed a Petition for Contested Case Hearing in

the Office of Administrative Hearings, appealing the Agency’s decision. The appeal

was heard by ALJ Lassiter in a week-and-a-half-long hearing. On 19 July 2022, ALJ

Lassiter entered the Final Decision awarding the CON to Pinnacle and reversing the

Agency’s decision to award the CON to Duke. ALJ Lassiter concluded the Agency’s

decision was based on material errors in the geographic accessibility analysis that led

to the erroneous decision that Duke’s application would be more effective. ALJ

Lassiter further concluded the Agency erroneously failed to follow principles used to

determine historical utilization, which would have revealed Pinnacle’s as the more

effective application. Finally, ALJ Lassiter concluded Pinnacle met its burden of

demonstrating the Agency’s decision substantially prejudiced its rights.

On 18 August 2022, Respondents filed timely notices of appeal.

II. Jurisdiction

The Final Decision issued by ALJ Lassiter is a final decision pursuant to N.C.

Gen. Stat. § 131E-188 (2021). This Court, therefore, has jurisdiction to review this

appeal from a final judgment entered by an ALJ pursuant to N.C. Gen. Stat. § 7A-

29(a) (2021).

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III. Analysis

Duke presents two arguments on appeal: (1) the ALJ erred in analyzing and

changing the Agency’s comparative analysis review; and (2) the Agency correctly

concluded Duke’s application was comparatively superior and the most effective

alternative under its comparative review analysis. The Agency argues the ALJ’s final

decision should be reversed due to Pinnacle’s failure to demonstrate substantial

prejudice. Because Duke and the Agency failed to make any specific arguments

challenging any specific findings of fact, we will not reach the merits of their

respective arguments.

A. Standard of Review

Even though Duke and the Agency adopt each other’s respective arguments by

reference pursuant to North Carolina Rule of Appellate Procedure 28(f), for clarity,

we will attribute the arguments made in each brief to the respective party. First, we

begin with Duke’s arguments regarding the appropriate standard of review.

Duke implores this Court to review this case by giving deference to the

Agency’s decision, and not to the Final Decision of the ALJ. To support this

argument, Duke cites several of this Court’s precedents that did, in fact, analyze

agency decisions by giving deference to the agency’s expertise and experience in the

particular field. While this review would have been correct in the cases preceding the

2011 legislative session, it is not a correct application of current law. What Duke

failed to note, either fortuitously or conveniently, is that our legislature amended the

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Administrative Procedure Act (the “APA”) in 2011, “conferring upon [ALJs] the

authority to render final decisions in challenges to agency actions, a power that had

previously been held by the agencies themselves.” AH N.C. Owner LLC v. N.C. Dep’t

of Health and Hum. Servs., 240 N.C. App. 92, 98, 771 S.E.2d 537, 541 (2015); see also

2011 N.C. Sess. Laws 1678, 1685–97, ch. 398, §§ 15–55. Before the legislature

amended the APA, an ALJ would issue a recommended decision to the respective

agency, which the agency was then free to adopt in full or in part, or reject in full.

See id. at 98, 771 S.E.2d at 541. Since the 2011 amendment, however, the ALJ

decision is no longer a recommendation but rather is the final decision binding on

parties. See N.C. Gen. Stat. § 150B-34(a) (2021). In reviewing an agency decision,

the ALJ “shall decide the case based upon the preponderance of the evidence, giving

due regard to the demonstrated knowledge and expertise of the agency with respect

to facts and inferences within the specialized knowledge of the agency.” Id.

As for our review of the ALJ’s final decision:

(b) The court reviewing a final decision may affirm the decision or remand the case for further proceedings. It may also reverse or modify the decision if the substantial rights of the petitioners may have been prejudiced because the findings, inferences, conclusions, or decisions are:

(1) In violation of constitutional provisions;

(2) In excess of the statutory authority or jurisdiction of the agency or administrative law judge;

(3) Made upon unlawful procedure;

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(4) Affected by other error of law;

(5) Unsupported by substantial evidence admissible under [N.C. Gen. Stat.] 150B-29(a), 150B-30, or 150B-31 in view of the entire record as submitted; or

(6) Arbitrary, capricious, or an abuse of discretion.

N.C. Gen. Stat. § 150B-51(b) (2021). When reviewing a final decision under

subsection five or subsection six of N.C. Gen. Stat. § 150B-51, this Court applies the

whole record test. See N.C. Gen. Stat. § 150B-51(c) (2021). While Duke does not

specify which subsections under which it challenges the Final Decision, it correctly

posits that the appropriate standard of review is the whole record test.

When applying the whole record test,

[the reviewing court] may not substitute its judgment for the [ALJ’s] as between two conflicting views, even though it could reasonably have reached a different result had it reviewed the matter de novo. Rather, a court must examine all the record evidence—that which detracts from the [ALJ’s] findings and conclusions as well as that which tends to support them—to determine whether there is substantial evidence to justify the [ALJ’s] decision.

Brewington v. N.C. Dep’t of Pub. Safety, 254 N.C. App. 1, 13, 802 S.E.2d 115, 124

(2017) (first alteration in original). “Substantial evidence is such relevant evidence

as a reasonable mind might accept as adequate to support a conclusion.” Surgical

Care Affiliates, LLC v. N.C. Dep’t of Health and Hum. Servs., 235 N.C. App. 620, 623,

762 S.E.2d 468, 470 (2014).

Duke correctly argues we are required to give a high degree of deference, but

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incorrectly asserts to whom this deference is given.

[I]n an administrative proceeding, it is the prerogative and duty of [the ALJ], once all the evidence has been presented and considered, to determine the weight and sufficiency of the evidence and the credibility of the witnesses, to draw inferences from the facts, and to appraise conflicting and circumstantial evidence. The credibility of witnesses and the probative value of particular testimony are for the [ALJ] to determine, and [the ALJ] may accept or reject in whole or in part the testimony of any witnesses. Our review, therefore, must be undertaken with a high degree of deference as to the credibility of witnesses and the probative value of particular testimony.

Brewington, 254 N.C. App. at 13, 802 S.E.2d at 124–25 (first alteration added)

(internal quotation marks and citation omitted).

B. Failure to Challenge Specific Findings

Pinnacle argues Respondents’ respective failures to challenge specific findings

of fact in the Final Decision render those challenges abandoned. We agree.

On appeal, the burden is on the appellant to show an error by the lower court.

See Rittelmeyer v. Univ. of N.C. at Chapel Hill, 252 N.C. App. 340, 351, 799 S.E.2d

378, 385 (2017) (concluding the petitioner had abandoned her argument challenging

the findings of fact because the petitioner “failed to specifically raise an argument on

appeal to any particular finding of fact, [] failed to address any particular finding of

fact as not supported by the evidence, and [] failed to raise any issues with the

findings of fact . . . .”). All unchallenged findings are deemed to be supported by

substantial evidence and “therefore are conclusively established on appeal.”

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Brewington, 254 N.C. App. at 17, 802 S.E.2d at 126 (quoting Koufman v. Koufman,

330 N.C. 93, 97, 408 S.E.2d 729, 731 (1991) (“Where no exception is taken to a finding

of fact by the trial court, the finding is presumed to be supported by competent

evidence and is binding on appeal.”)).

Our Supreme Court made this principle of judicial review crystal clear in

Brackett v. Thomas. 371 N.C. 121, 814 S.E.2d 86 (2018) (unchallenged findings of fact

in an appeal from an agency decision are binding on appeal). The dissent posits

Brackett is inapplicable because the holding does not apply to the whole record test.

The statute under review in Brackett, however, limited the reviewing court to

determining whether there is sufficient evidence “in the record” to support the

agency’s decision. Id. at 125, 814 S.E.2d 86; see also N.C. Gen. Stat. § 20-15.2(e)

(2021). As we have stated, the whole record test requires the reviewing court to

determine whether there is substantial evidence in the record to support the ALJ’s

Final Decision. See Brewington, 254 N.C. App. at 13, 802 S.E.2d at 124.

Under Brackett, a reviewing court must not consider “whether the evidence in

the record” supports the conclusion of the lower court, but “whether the uncontested

findings of fact” support the conclusion. Brackett, 371 N.C. at 126, 814 S.E.2d at 89.

Brackett is clear: “[i]t is the role of the agency, rather than a reviewing court, ‘to

determine the weight and sufficiency of the evidence and the credibility of the

witnesses, to draw inferences from the facts and to appraise conflicting and

circumstantial evidence.’” Id. at 126–27, 814 S.E.2d at 89 (citation omitted).

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1. Duke’s Arguments

Duke asserts that “[t]hroughout its brief and in its proposed issues on appeal

Duke makes it clear that it is appealing the ALJ’s decision to reverse the Agency’s

decision to award Duke a CON.” This may be true; Duke, however, failed to make

any specific arguments challenging any particular findings of fact. See Rittelmeyer,

252 N.C. App. at 349, 799 S.E.2d at 384. Most of Duke’s brief is dedicated to showing

why the Agency decision was correct, while failing to specifically show this Court

where the ALJ’s Final Decision was incorrect. Duke makes various conclusory

statements including that the ALJ failed to apply the appropriate standard of review,

the ALJ erred in changing the Agency’s comparative analysis review, and the

Agency’s decision was correctly decided. Instead of challenging specific findings of

fact, however, Duke cites to a range of pages within the Record. We decline Duke’s

apparent invitation to sift through the entire Record to find substantial evidence, or

lack thereof, for all 155 findings of fact enumerated in the Final Decision. That is the

job of the appellant. See Rittelmeyer, 252 N.C. App. at 351, 799 S.E.2d at 385.

2. The Agency’s Argument

The Agency argues this Court’s role is to review whether Pinnacle met its

burden of showing substantial prejudice. The question before this Court, however, is

“whether the whole record contains relevant evidence that a reasonable mind might

accept as adequate to support the [ALJ’s] decision” that Pinnacle showed it suffered

substantial prejudice from the Agency’s granting of the CON to Duke. CaroMont

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Health, Inc. v. N.C. Dep’t of Health and Hum. Servs., 231 N.C. App. 1, 5, 751 S.E.2d

244, 248 (2013) (emphasis added). Our review is not conducted with an eye towards

whether Pinnacle met its burden of proof to the ALJ; instead, our review is focused

on whether the ALJ’s Final Decision concluding Pinnacle did meet its burden is

supported by substantial evidence. As previously stated, without challenging specific

findings of fact in the Final Decision, which the Agency failed to do, those findings

are binding on appeal. See Brewington, 254 N.C. App. at 17, 802 S.E.2d at 126. We

further decline to give the same deferential reading of the Agency’s brief as the

dissent does, and to interpret the Agency’s arguments as challenging specific findings

of fact, when no such findings are explicitly challenged.

As both Duke and the Agency failed to challenge specific findings of fact in

their respective briefs, the findings of fact in the Final Decision are deemed to be

supported by substantial evidence and survive the whole record test. See Brewington,

254 N.C. App. at 17, 802 S.E.2d at 126. Were we to review the appeal at hand without

Respondents challenging specific findings of fact, as the dissent concludes we should,

we would be impermissibly determining the weight and sufficiency of the evidence

and drawing our own inferences from the facts. Brackett makes clear that this type

of review is “prohibited.” Brackett, 371 N.C. at 127, 814 S.E.2d at 89.

IV. Conclusion

For the reasons stated above, we hold the ALJ’s Final Decision was supported

by substantial evidence. We therefore affirm the ALJ’s Final Decision awarding the

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CON to Pinnacle.

AFFIRMED

Judge CARPENTER concurs.

Judge TYSON dissents in a separate opinion.

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TYSON, Judge, dissenting.

The majority’s opinion erroneously affirms the Administrative Law Judge’s

(“ALJ”) decision to reverse the agency’s decision and award the Certificate of Need

(“CON”) to Pinnacle. I disagree with the standard of review the majority applies to

review Duke’s and North Carolina Department of Health and Human Services’ (“NC

DHHS”) arguments and the ALJ’s decision on appeal. I respectfully dissent.

I. The Office of Administrative Hearings’ Standard of Review

Contrary to the majority’s assertion that Duke did not raise or properly

challenge the ALJ’s decision, the first sentence of Duke’s argument on appeal states:

“The ALJ failed to exercise the appropriate scope of review in reviewing the Agency’s

selection of factors it used for the Comparative Analysis Review of the Duke and

Pinnacle applications and how it applied those factors in this review.” (emphasis

supplied). Duke argues the ALJ applied the wrong statutory standard of review when

examining and reversing the agency’s decision to grant the CON to Duke instead of

Pinnacle.

Duke further advances this argument later in its brief: “In essence, Pinnacle

encouraged the ALJ to conduct a de novo review of the Agency’s decision and the ALJ

improperly did exactly that. Duke now anticipates that Pinnacle will contend that

this Court also should affirm the ALJ’s erroneous application of a de novo standard[.]”

Duke further asks this Court to apply “the legally applicable standard,” i.e., the PINNACLE HEALTH SERVS. OF N.C., LLC V. N.C. DEP’T OF HEALTH & HUM. SERVS.

TYSON, J., dissenting

correct statutory standard of review the ALJ should have applied to the agency’s

decision, and hold as a matter of law “the Agency committed no error” by awarding

the CON to Duke.

The ALJ’s mandated standard of review of NC DHHS’ decision is defined in

the North Carolina Administrative Procedure Act (“NCAPA”). N.C. Gen. Stat.

§§ 150B-1 to 52 (2021). The NCAPA limits the ALJ’s review of an agency’s decision

to whether the agency: “substantially prejudiced the petitioner’s rights and that the

agency did any of the following: (1) Exceeded its authority or jurisdiction. (2) Acted

erroneously. (3) Failed to use proper procedure. (4) Acted arbitrarily or capriciously.

(5) Failed to act as required by law or rule.” N.C. Gen. Stat. § 150B-23(a)(1)-(5) (2021)

(emphasis supplied).

The standard of review this Court applies on appeal differs from the standard

of review the ALJ applies to an agency’s decision. Our standard of review provides

two separate standards of appellate review, depending upon the appealing party’s

alleged errors and arguments before this Court. N.C. Gen. Stat. § 150B-51 (2021)

A de novo standard of review is applied if a party argues the ALJ’s “findings,

inferences, conclusions, or decisions are: (1) In violation of constitutional provisions;

(2) In excess of the statutory authority or jurisdiction of the agency or administrative

law judge; (3) Made upon unlawful procedure; [or] (4) Affected by other error of law[.]”

N.C. Gen. Stat. § 150B-51(b)(1)-(4) and 51(c).

If the appealing party argues the ALJ’s decision was “(5) Unsupported by

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substantial evidence admissible . . . in view of the entire record as submitted; or (6)

Arbitrary, capricious, or an abuse of discretion[,]” this Court must apply the “whole

record” test. N.C. Gen. Stat. § 150B-51(b)(5)-(6) and 51(c).

The majority’s opinion concludes Duke’s argument asserting the ALJ applied

the wrong standard of review falls under either subsections (5) and (6) of § 150B-

51(b), and this Court should review Duke’s argument using a “whole record” standard

of review.

Duke’s argument asserting the ALJ used the wrong standard of review when

examining the agency’s decision is properly reviewed under subsections (2), (3), or (4)

of § 150B-51. Whether the ALJ applied the correct standard of review is a question

of law, and any failure by the ALJ to apply the correct standard of review is best

categorized as the ALJ’s decision being: “(2) In excess of the statutory authority or

jurisdiction of the agency or administrative law judge; (3) Made upon unlawful

procedure; [or] (4) Affected by other error of law[.]” N.C. Gen. Stat. § 150B-51(b)(2)-

(4). On appeal, this Court should conduct a de novo review of whether the ALJ

applied the correct standard of review. N.C. Gen. Stat. § 150B-51(c).

This Court is required, and the majority’s opinion should have determined,

whether the ALJ applied the appropriate standard of review set out in N.C. Gen. Stat.

§ 150B-23(a). While this Court lacks the authority to examine the agency’s findings

using the statutory standard of review prescribed to the ALJ in N.C. Gen. Stat.

§ 150B-23(a), this Court maintains the authority to remand the matter to the ALJ to

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comply with statute and to correctly apply the statutorily-mandated standard of

review.

The ALJ’s order recites the correct conjunctive standard of review from the

NCAPA:

17. According to N.C. Gen. Stat. § 150B-23(a), an agency decision is subject to reversal if the agency substantially prejudiced Petitioner’s rights and: (1) Exceeded its authority or jurisdiction. (2) Acted erroneously. (3) Failed to use proper procedure. (4) Acted arbitrarily or capriciously; or (5) Failed to act as required by law or rule.

Pinnacle’s argument asserts the ALJ’s decision and the record before us

indicate the ALJ applied the appropriate standard of review pursuant to N.C. Gen.

Stat. § 150B-23(a). In reviewing an agency decision, the ALJ is mandated and “shall

decide the case based upon the preponderance of the evidence, giving due regard to

the demonstrated knowledge and expertise of the agency with respect to facts and

inferences within the specialized knowledge of the agency.” N.C. Gen. Stat. § 150B-

34(a).

When the ALJ reviewed NC DHHS’ comparative analysis of Duke’s and

Pinnacle’s CON applications, the ALJ focused its findings of fact on whether the

agency had “acted erroneously,” which is a prong of N.C. Gen. Stat. § 150B-23(a)(2).

The ALJ found: (1) “[T]he Agency acted erroneously by concluding that Duke was

superior on the Geographic Accessibility comparative factor” because certain ratios

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had a denominator of zero, which is mathematically impossible; (2) “Pinnacle’s

Operating Expenses were the lowest of all three applicants, and therefore Pinnacle

was more effective. By finding this factor inconclusive and failing to find Pinnacle

more effective, the Agency acted erroneously[;]” (3) “The Agency’s own calculations

demonstrated that Pinnacle had the highest historical utilization per existing

scanner and would be more effective with respect to this factor[;]” and, (4) “Pinnacle

projected the highest historical utilization per scanner and should have been found

‘more effective’ with respect to the historical utilization factor. The Agency’s

determination that this factor was inconclusive was erroneous[.]”

While the ALJ is statutorily required to give “due regard to the demonstrated

knowledge and expertise of the agency” as required by N.C. Gen. Stat. § 150B-34(a),

the NCAPA also permits the ALJ to examine whether the agency “acted erroneously”

or “failed to use proper procedure” using the standard of review outlined in N.C. Gen.

Stat. § 150B-23(a)(2)-(3). This Court should examine Duke’s argument using a de

novo standard of review and determine whether the agency followed the statutory

standard of review in N.C. Gen. Stat. § 150B-23(a).

II. Challenged Findings of Fact

NC DHHS argues Pinnacle failed to demonstrate and meet its statutory

burden of showing “substantial prejudice” as a result of the CON being awarded to

Duke. N.C. Gen. Stat. § 150B-23(a). The agency asserts Pinnacle failed to meet its

burden before the OAH, and the ALJ was prohibited from reversing the agency’s

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decision and awarding the CON to Pinnacle.

The majority’s opinion correctly notes this Court applies the whole record test

to arguments challenging whether findings of fact are supported by substantial

evidence. N.C. Gen. Stat. § 150B-51(b)(5)-(6) and 51(c).

The majority’s opinion erroneously concludes NC DHHS was required and

failed to challenge specific findings of fact in the ALJ’s decision. Their opinion holds

the whole record test requires all of the 155 findings of facts contained in the thirty-

six pages of the 19 July 2022 decision to be individually objected to, and, if not, it

becomes binding upon appeal, citing Brewington v. N.C. Dep’t of Pub. Safety, 254 N.C.

App. 1, 17, 802 S.E.2d 115, 126 (2017) and Koufman v. Koufman, 330 N.C. 93, 97, 408

S.E.2d 729, 731 (1991).

Under the whole record test, whether before the ALJ or this Court, the

reviewing officer or court is required to look at the entirely of the evidence, the “whole

record”, and not individual findings to determine whether the agency’s findings of

fact are supported by substantial evidence. N.C. Gen. Stat. § 150B-51(b)(5)-(6) and

51(c). The issue is “whether the Agency’s decision that [petitioner] failed to prove

substantial prejudice is supported by substantial evidence when considering the

record as a whole[.]” CaroMont Health, Inc. v. N.C. Dep’t of Health & Human Servs.,

231 N.C. App. 1, 5, 751 S.E.2d 244, 248 (2013) (emphasis supplied) (citation omitted).

As such, individual evidence or even findings to the contrary are immaterial, so long

as “the whole record contains relevant evidence that a reasonable mind might accept

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as adequate to support the Agency’s conclusion[.]” Id.

The notion that each individual finding in the whole record must be excepted

to preserve review is not supported in the NCAPA or in our CON precedents. That

individual exception to each finding of fact requirement may arise in domestic

relations, child custody, or other cases, but not under the whole record review of a

CON before the OAH or this Court. See Koufman, 330 N.C. 93, 97, 408 S.E.2d 729,

731 (1991) (“Where no exception is taken to a finding of fact by the trial court, the

finding is presumed to be supported by competent evidence and is binding on appeal.”

(citations omitted)).

While our Supreme Court cited Koufman in Brackett v. Thomas, the superior

court’s standard of review in those cases differs from the case presently before us on

appeal. Brackett v. Thomas, 371 N.C. 121, 122, 814 S.E.2d 86, 87 (2018). In Brackett,

the superior court’s standard of review for examining an agency decision by the

Department of Motor Vehicles was governed by N.C. Gen. Stat. § 20-16.2(e), which

provides the “superior court review shall be limited to whether there is sufficient

evidence in the record to support the Commissioner’s findings of fact and whether the

conclusions of law are supported by the findings of fact and whether the

Commissioner committed an error of law in revoking the license.” Id. at 125, 814

S.E.2d at 89 (quoting N.C. Gen. Stat. § 20-16.2(e)). Brackett does not apply in OAH

administrative appeals, where this Court applies the whole record test.

Even if the majority’s assertion that NC DHHS was required to object to

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specific findings of fact on appeal, NC DHHS’s brief specifically challenges several

findings of fact, with specific references to the record:

In the Final Decision, the ALJ determined that Pinnacle was substantially prejudiced for three reasons: • The Agency denied Pinnacle’s otherwise approvable application; (R p. 265) • Pinnacle’s denial infringes on its freedom to buy additional equipment using its own funds and the ability to compete with Duke; Id. and, • Pinnacle’s denial will impact its operations, limit its capacity and its ability to meet patient’s needs, prevent it from realizing approximately $400,00.00 annually in savings and prevent it from earning approximately $97,000 in additional net income annually. Id.

The ALJ’s decision makes the following findings of fact, which mirror the

contested facts in NC DHHS’ brief on appeal:

61. The denial of its CON application infringes on Pinnacle’s freedom to invest in additional equipment using its own funds, and the ability to compete with Duke on the same footing.

62. Pinnacle demonstrated it will suffer an injury in fact as a result of the Agency’s decision. The denial of its application will have a significant impact on its operations, limiting its capacity and its ability to meet patients’ needs, preventing it from realizing approximately $400,000.00 annually in savings, and preventing it from earning approximately $97,000 in additional net income annually.

This Court is required to “‘examine all competent evidence’” and apply the

whole record test to determine whether Findings of Fact 61 and 62 were supported

by sufficient evidence in the whole record before the ALJ. Surgical Care Affiliates,

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LLC v. N.C. Dep’t of Health & Hum. Servs., 235 N.C. App. 620, 622-23, 762 S.E.2d

468, 470 (2014) (quoting Parkway Urology, P.A. v. N.C. Dep’t of Health & Human

Servs., 205 N.C. App. 529, 535, 696 S.E.2d 187, 192 (2010)).

The CON application and review process originates before NC DHHS and not

the OAH. The OAH’s review jurisdiction under the NCAPA is not original or co-

existent. The ALJ is not writing on a clean slate and is statutorily constrained and

mandated to “giv[e] due regard to the demonstrated knowledge and expertise of the

agency with respect to facts and inferences within the specialized knowledge of the

agency.” N.C. Gen. Stat. § 150B-34(a).

While the OAH and the ALJ, since the 2011 amendments to the statute, can

issue a Final instead of a Recommended Decision, those amendments and the

standards and constraints in the NCAPA do not allow an ALJ to merely disagree with

and substitute its judgment for that of “the specialized knowledge of the agency.” Id.

See 2011 N.C. Sess. Laws 1678, 1685–97, ch. 398, §§ 15–55.

Here, both applicants, Pinnacle and Duke, submitted conforming applications.

NC DHHS could approve only one application, as only one CON was authorized.

There was necessarily going to be a winner and a loser, as in all competitive

environments and contests. The Agency conducted an extensive and competitive

review of the applications within its expertise to determine which was more effective

for the purposes of awarding the CON. On 24 September 2021, the Agency approved

Duke’s application and denied Pinnacle’s application.

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The CON statute vests the decision with NC DHHS, of whether to award a

CON to Duke or Pinnacle subject to review in the OAH under the standards,

constraints, and procedures of the NCAPA. N.C. Gen. Stat. §§ 150B-23(a)(1)-(5) and

131E-177(6) (2021). This review, allowed pursuant to the NCAPA, is not a hearing

de novo before the ALJ, and she was not free to substitute her personal preferences

for the record, expertise, and knowledge of the agency merely to reach a contrary

result. N.C. Gen. Stat. § 150B-34(a).

The burden of establishing “substantial prejudice” fell on Pinnacle as the

petitioner before the OAH. Parkway Urology, 205 N.C. App. at 535-39, 696 S.E.2d at

192-95; N.C. Gen. Stat. § 150B-23(a). See also N.C. Gen. Stat. § 131E-188. Pinnacle

was required to demonstrate it was “substantially prejudiced” by the Agency’s

decision to approve a competing application. N.C. Gen. Stat. § 150B-23(a).

“[H]arm from normal competition does not amount to substantial prejudice[.]”

CaroMont Health, 231 N.C. App. at 8, 751 S.E.2d at 250 (citing Parkway Urology, 205

N.C. App. at 539, 696 S.E.2d at 195). See also Blue Ridge Healthcare Hosps. Inc. v.

N.C. Dep’t of Health & Human Servs., 255 N.C. App. 451, 464, 808 S.E.2d 271, 279-

80 (2017); Surgical Care Affiliates, 235 N.C. App. at 632, 762 S.E.2d at 476 (finding

the petitioner failed to demonstrate “substantial prejudice” because “the only

purported harm to Petitioners is the possibility that the Agency’s decision will make

it more difficult for them to expand their business”).

Also, “‘economic losses [a petitioner] will suffer as a result of the Agency’s

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decision’” generally does not amount to substantial prejudice, as it amounts to harm

from normal competition. Cumberland Cnty. Hosp. Sys., Inc. v. N.C. Dep’t of Health

& Human Servs., 237 N.C. App. 113, 123, 764 S.E.2d 491, 498 (2014) (citing CaroMont

Health, 231 N.C. App. at 8, 751 S.E.2d at 250).

This Court is required to apply the whole record test to determine whether

Findings of Fact 61 and 62 were supported by sufficient evidence in the “whole record”

before the ALJ. Surgical Care Affiliates, 235 N.C. App. at 622-23, 762 S.E.2d at 470

(citation omitted); CaroMont Health, 231 N.C. App. at 5, 751 S.E.2d at 248. If a

petitioner cannot demonstrate the threshold substantial prejudice requirement, the

ALJ need not address allegations of Agency error. Surgical Care Affiliates, 235 N.C.

App. at 629-30, 762 S.E.2d at 475 (explaining “the petitioner must establish that the

Agency has deprived it of property, has ordered it to pay a fine or penalty, or has

otherwise substantially prejudiced the petitioner’s rights, and, in addition, the

petitioner must establish that the agency's decision was erroneous in a certain,

enumerated way, such as failure to follow proper procedure or act” (citation omitted)).

Pinnacle’s failure to show “substantial prejudice” merely from losing the

competition and its consequent economic loss condemns their case. Id.; N.C. Gen.

Stat. § 150B-23(a)(1)-(5). The ALJ’s decision is properly vacated.

III. Conclusion

The CON statute vests the award with NC DHHS, subject to review in the OAH

by the ALJ under the standards, constraints, and procedures of the NCAPA. This

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review allowed in the NCAPA is not a hearing de novo before the ALJ, and she was

not free to substitute her personal preferences for the record, expertise, and

knowledge of the agency merely to reach a contrary result. N.C. Gen. Stat. § 150B-

The ALJ found “[t]he denial of its CON application infringes on Pinnacle’s

freedom to invest in additional equipment using its own funds, and the ability to

compete with Duke on the same footing.” She also found:

Pinnacle demonstrated it will suffer an injury in fact as a result of the Agency’s decision. The denial of its application will have a significant impact on its operations, limiting its capacity and its ability to meet patients’ needs, preventing it from realizing approximately $400,000.00 annually in savings, and preventing it from earning approximately $97,000 in additional net income annually.

While both may be true, as between two admittedly qualified applicants and

only one CON available, those findings will be equally true no matter which party is

not awarded the CON. It is not up to the ALJ under the statute to make that

determination, but only to review “whether the whole record contains relevant

evidence that a reasonable mind might accept as adequate to support the Agency’s

conclusion[.]” CaroMont Health, 231 N.C. App. at 5, 751 S.E.2d at 248 (citation

omitted). The ALJ’s decision is affected with error and is properly vacated and

remanded. I respectfully dissent.

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