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December 08, 2020

The exhaustion of administrative remedies is a prerequisite to initiating a judicial challenge to a final administrative decision

Petitioner [Facility] in this CPLR Article 78 action to review a determination by the New York State Department of Health's Office of the Medicaid Inspector General [OMIG] appealed the order and judgment of Supreme Court dismissing Plaintiff's Article 78 petition.

OMIG had issued its final audit report of an assisted living facility's [Facility] Assisted Living Program applications for Medicaid reimbursement and commenced efforts to recover alleged over-payments made to Facility. 

Facility requested an administrative hearing to challenge OMIG's audit report's findings. On the same day Facility initiated a CPLR Article 78 proceeding contending that OMIG's report "was affected by an error of law and was arbitrary, capricious, and an abuse of discretion" in an effort to obtain a court order annulling OMIG's final audit report and obtain certain other judicial relief. OMIG then cross-moved to dismiss Facility's Article 78 petition, arguing that Facility had failed to exhaust its administrative remedies before seeking judicial intervention. 

Supreme Court granted OMIG's cross motion to dismiss the Facility's petition and Facility appealed that ruling.

The Appellate Division sustained the Supreme Court's holding that Facility was required to exhaust its administrative remedies before commencing its Article 78 special proceeding. The court opined that "It is hornbook law that one who objects to the act of an administrative agency must exhaust available administrative remedies before being permitted to litigate [its  objection] in a court of law," citing Watergate II Apts. v Buffalo Sewer Auth., 46 NY2d 52.*

Addressing Facility's contention that it had raised a constitutional challenge alleging that OMIG exceeded its authority and violated Article III, §1, of the New York State Constitution in arriving at its ruling, the Appellate Division explained that "A constitutional claim that hinges upon factual issues reviewable at the administrative level must first be addressed to the agency so that a necessary factual record can be established." Further, said the Court, "... the mere assertion that a constitutional right is involved will not excuse the failure to pursue established administrative remedies that can provide the required relief."

Noting that Facility's constitutional claim hinged on factual issues concerning OMIG reaching its determination, the Appellate Division opined that such issues "must first be addressed in an administrative proceeding."

The Appellate Division also said it agreed with the Supreme Court's finding that Facility "failed to demonstrate that resort to an administrative appeal would be futile or that it would suffer irreparable injury based upon its conclusory claim of financial distress" and affirmed the lower court's order granting OMIG's motion to dismiss Facility's petition for failure to exhaust administrative remedies.

* The Appellate Division, however, also noted that "The exhaustion rule, however, is not an inflexible one. It is subject to important qualifications. It need not be followed, for example, when an agency's action is challenged as either unconstitutional or wholly beyond its grant of power, or when resort to an administrative remedy would be futile or when its pursuit would cause irreparable injury" citing see Town of Oyster Bay v Kirkland, 81 AD3d 812.

The decision is posted on the Internet at http://www.nycourts.gov/reporter/3dseries/2020/2020_07054.htm.

 

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