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New Jersey Education Association v. Fred Beaver


April 20, 2011


On appeal from Administrative Actions of the Director of the Division of Pensions and Benefits, of the School Employees Health Benefits Commission and of the State Health Benefits Commission.

Per curiam.


Argued March 28, 2011

Before Judges Rodriguez, Grall and C.L. Miniman.

Pursuant to Rule 2:2-3(a)(2), the New Jersey Education Association (Association) invokes this court's jurisdiction to review agency action and inaction. Pascucci v. Vagott, 71 N.J. 40, 52 (1976); Hospital Ctr. at Orange v. Guhl, 331 N.J. Super. 322, 329 (App. Div. 2000). The Association challenges a contract for pharmacy benefit management services between Medco Health Solutions, Inc. (Medco) and the Department of Treasury.*fn1

The respondents are the School Employees' Health Benefits Commission (SEHBC), which is charged with establishing a health benefits program for the school employees of the State, N.J.S.A. 52:14-17.46.3, -17.46.4; the State Health Benefits Commission (SHBC), which is charged with establishing a health benefits program for the employees of the State, N.J.S.A. 52:14-17.27; and Fred Beaver, the Director of the Division of Pensions and Benefits in the Department, who serves ex-officio as the secretary of both the SHBC, N.J.S.A. 52:14-17.27, and the SEHBC, N.J.S.A. 52:14-17.46.4.

The SEHBC was established in the School Employees' Health Benefits Program Act, L. 2007, c. 103, §§ 31-41 (codified at N.J.S.A. 52:14-17.46.1 to -17.46.11), and that Act made school employees ineligible for participation in the State Health Benefits Program. N.J.S.A. 52:14-17.27. Previously, when school employees participated in the State Health Benefits Program, the Association "represent[ed] the largest number of employees of employers other than the State participating in the State Health Benefits Program." Ibid. Recognizing the Association's interest in the Program's operations, the Act requires that the Governor nominate three of the SEHBC's nine members from a list of five nominees proposed by the Association. N.J.S.A. 52:14-17.46.3(9)(4).

The Association filed this appeal because the SEHBC did not respond to its letters asking the SEHBC to invalidate changes in the school employees' prescription drug program effectuated through the Medco contract. The Medco contract was procured pursuant to a memorandum of understanding (MOU) between the SEHBC and the SHBC authorizing the SHBC and Division of Purchase and Property (Division) "to include participation by school employees in the [request for proposals (RFP)] and anticipated contract for Pharmacy Benefits Manager which shall continue for the duration of the contract term and any extensions set forth in the RFP." The SEHBC discussed the MOU at its January 28, 2009 meeting and approved its final form at the February 25 meeting, and the chairman of the SEHBC signed the MOU on that date.

The minutes of the February 25, 2009 meeting reflect that a representative of the Division was present. "She indicated that neither [the SHBC nor the SEHBC] would have direct input in the RFP, but that they could pose questions once the RFP is posted on the [Division's] website." Minutes of subsequent meetings provided to us, January 14 and 27, July 14 and 21, and September 22, 2010, include no reference to the RFP, the Medco contract or its implementation. The only exception is a reference to an oral report provided to the SEHBC by its manager of policy, planning and operations noting that "Medco's transition is moving along relatively smoothly with a few bumps in the road."

The Association's letters objecting to the prescription drug program as managed by Medco were sent on February 4 and 19, 2010. In the second letter, the Association advised that it would deem silence a denial if it did not have a response by March 4. Receiving no response by that date, on March 12, the Association filed a notice of appeal.

Subsequent to the filing of the notice of appeal, on March 15, the chairperson of the SEHBC wrote to the Association and advised that he would distribute the February 4, 2010 letter to the members and the SEHBC would receive "an update on [the] implementation of the Plan" at a meeting on March 24, 2010. Thereafter, the Association did not withdraw its appeal, and no respondent moved to dismiss it. The SEHBC later cancelled its March 24 meeting for reasons unknown to us.

On appeal, the Association raises issues that substantially mirror the specific charges raised in its February 4, 2010 letter. The challenges do not deal with a particular individual's denial of coverage for medication. They address the legality of the process by which the contract was awarded to Medco and the changes in prescription benefits allegedly implemented through that contract. The Association argues:

1) Medco's step-therapy criteria and procedure, relevant to coverage for and access to "nonpreferred" medications effectively changed the level of co-payments and benefits in violation of N.J.S.A. 52:14-17.46.6(f)(2)(b) and N.J.A.C. 11:24-18.2;

2) The changes effectuated through the Medco contract imposing "limitations, exclusions or waiting periods" can only be made by the SEHBC and only if the SEHBC finds them to be necessary or desirable, but the SEHBC impermissibly delegated that responsibility to the Division, N.J.S.A. 52:14-17.46.5; N.J.A.C. 17:9-10.23; and,

3) The changes in benefits were not made in conformity with an audit procedure as required by N.J.S.A. 52:14-17.46.5 and N.J.S.A. 52:14-17.46.10.


We first address respondents' challenge to the Association's standing to pursue this appeal. New Jersey takes "a liberal view on the issue" of standing. Urban League of Essex County v. Mahwah Twp., 147 N.J. Super. 28, 33 (App. Div.), certif. denied, 74 N.J. 278 (1977). Standing requires the litigant only to have a sufficient stake in the matter and real adverseness, with a substantial potential for real harm flowing from the outcome of the case. In re N.J. Bd. of Pub. Utils., 200 N.J. Super. 544, 556 (App. Div. 2000). Moreover, where the question of standing is debatable, the case will be allowed to proceed if resolution of the issues presented are in the public interest. Booth v. Twp. of Winslow, 193 N.J. Super. 637, 640 (App. Div.), certif. denied, 97 N.J. 657 (1984), cert. denied, 469 U.S. 1107, 105 S. Ct. 781, 83 L. Ed. 2d 776 (1985).

Organizations, like the Association, may present claims on behalf of their members where the issues presented are ones of common concern to its members. See Crescent Park Tenants Assoc. v. Realty Equities Corp., 58 N.J. 98, 109 (1971). Our courts have deemed it appropriate to grant an organization standing to attack agency action of interest to its members. See, e.g., In re Six-Month Extension of N.J.A.C. 5:91-1, 372 N.J. Super. 61, 86 (App. Div. 2004) (holding that New Jersey Builders Association had standing to challenge Council on Affordable Housing regulations), certif. denied, 182 N.J. 630 (2005);

Indep. Energy Prods. of N.J. v. N.J. Dep't of Envtl. Prot., 275 N.J. Super. 46, 55-56 (App. Div.) (holding that commercial competitors of successful permit applicant had standing to challenge the grant as they may be the only ones with sufficient incentive to advance the public interest in permits being issued only pursuant to law), certif. denied, 139 N.J. 187 (1994); In re Waterfront Development Permit, 244 N.J. Super. 426, 437-38 (App. Div.) (holding that American Littoral Society had standing to challenge a waterfront development permit), certif. denied, 126 N.J. 320 (1990).

Applying the foregoing standards, we see no basis for concluding that the Association lacks standing to pursue the issues it raises on this appeal. As noted above, in the context of public employee health benefits, the Legislature has expressly recognized the Association's interest, which is based on its members' participation in the program. N.J.S.A. 52:14-17.27, 17.46.3(a)(4). Accordingly, we reject respondents' arguments to the contrary.


We turn to consider the proper disposition of this appeal, which was prompted by the SEHBC's delayed response to the Association's letters of February 4 and 19, 2010. Because the appeal is from the SEHBC's failure to provide a response to the Association's February 4 challenge on the date demanded, it is, at least in part, an appeal from agency inaction. In addition, the essence of the Association's arguments is that the SEHBC has failed to exercise its responsibility with respect to changes in the prescription benefit plan affected by the Medco contract and Medco's administration of the prescription drug plan. That is also akin to a claim of agency inaction.

The appropriate procedures on an appeal from agency inaction are set forth in our decision in Guhl. 331 N.J. Super. at 330. The appellant should file a "motion for summary disposition accompanied by a supporting brief, certification and other relevant factual materials." Ibid. With the agency's response, this court can then proceed to determine whether a remand to develop or settle the record is needed. See ibid.; R. 2:5-5. Unfortunately, this appeal has not proceeded in that fashion.

Thus, we must consider whether it is appropriate to resolve this appeal on this record or defer decision until the SEHBC has addressed the issues and developed the record. The manner in which this record was submitted to us militates against a decision on the merits.

The record was not compiled and presented as contemplated by our rules. After the appeal was filed, respondents filed and served the statement of items comprising the record required by Rule 2:5-4(b). The requisite statement of items is not a technicality, it serves the important purposes of "facilitat[ing] appellant's preparation of the appendix as well as the appellate court's understanding" of the record. Pressler & Verniero, Current N.J. Court Rules, comment 2 on R. 2:5-4 (2011). Contrary to those goals, after the Association unsuccessfully moved to compel production of documents and supplement the record and after the Association filed its brief, respondents submitted an appendix that includes documents not listed in their statements of items. Moreover, it even includes some documents that the Association had asked respondents to produce.

This process gives us reason to question whether the record is adequate to permit us to review the issues raised. In addition to that general doubt, we have noted deficiencies that hamper our review. Neither appendix includes a copy of the Medco contract, and we do not know whether the SEHBC or SHBC has evaluated the contract or the RFP. There are also significant gaps in the dates of the minutes we have been given. Under these circumstances, it would be improvident for us to address the merits.

This appeal from agency inaction raises another procedural question relevant to the propriety of a decision at this juncture. The SEHBC's March 15, 2010 letter implies, albeit obliquely, that the SEHBC is prepared to consider Medco's implementation of the plan in light of the Association's objections. Thus, it appears that there is an available opportunity for review by the SEHBC, which suggests that, as a prudential matter, we should not consider this appeal.

See R. 2:2-3(a)(2).

Although this is not technically an exhaustion case, the policies behind exhaustion guide us to the proper disposition of the appeal. An appellant's obligation to exhaust administrative avenues for relief may be relaxed when only legal issues are involved, but such relaxation is inappropriate when agency expertise, policy and discretion or judgment is particularly pertinent to the resolution of the legal question. Essex v. Council Number 1 v. Gibson, 118 N.J. Super. 583, 586 (App. Div. 1972). Adherence to that principle permits us to give proper deference to the expertise of the agency the Legislature has vested with responsibility for the program at issue.

Without doubt, the Association's legal challenge to the process by which the Medco contract was awarded and its claim that Medco's management of a prescription benefit plan violates the statutes and regulations governing the SEHBC present questions involving the SEHBC's expertise. At oral argument, the Deputy Attorney General representing respondents indicated that the SEHBC would address the issues raised by the Association if given the chance and that it would give the Association an opportunity to ensure that the record is complete. In our view, the nature of the legal questions, in combination with the inadequate and questionable state of this record, warrant remand to permit the Association to develop a record and for us to obtain the benefit of the SEHBC's expertise.

Accordingly, the appeal is remanded to the SEHBC so that it may make a determination on the issues raised after developing the record as it sees fit in accordance with its rules of procedure.

The SEHBC shall complete the remand proceedings within sixty days of this opinion and respondents shall file and serve an appropriate statement of items comprising the record within thirty days of that completion. Upon receipt of the statement of items, the clerk shall issue an expedited briefing schedule.

Reversed and remanded. Jurisdiction is retained.

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