New Hampshire Municipal Association & a. v. New Hampshire Department of State & a.

THE STATE OF NEW HAMPSHIRE

SUPREME COURT

In Case No. 2014-0596, New Hampshire Municipal
Association & a. v. New Hampshire Department of State & a.,
the court on June 22, 2015, issued the following order:

Having considered the briefs, oral argument, and the record on appeal,
the court concludes that a formal written opinion is unnecessary in this case.
The defendants, the New Hampshire Department of State and the New
Hampshire Bureau of Securities Regulation (Bureau), appeal an order of the
Superior Court (McNamara, J.) denying their motion to dismiss the plaintiffs’
petition for declaratory judgment. We affirm.

The pertinent facts are as follows. The plaintiffs are the New Hampshire
Municipal Association, Inc. (NHMA), a voluntary corporation, and its several
subsidiaries. On August 16, 2012, the department of state issued a final order
directing NHMA, formerly known as Local Government Center, Inc., to organize
its two pooled management programs into a form that provides each program
with an independent board and its own set of written bylaws. Accordingly,
NHMA sought to reorganize its two public sector risk pools from limited liability
companies to not-for-profit voluntary corporations, see RSA ch. 292 (2010 &
Supp. 2014), believing that doing so would achieve the requirements of the
final order.

On August 22, 2013, the Bureau informed NHMA by letter that, among
other things, the reorganization was inconsistent with the language of RSA
292:7 (2010). The letter focused on the statutory language that “[a]ny
corporation now or hereafter organized or registered in accordance with the
provisions of this chapter, and any existing corporation which may have been
so organized or registered, may . . . merge with or acquire any other
corporation formed pursuant to this chapter.” RSA 292:7. Nonetheless, on
September 1, 2013, NHMA and its subsidiaries reorganized as not-for-profit
corporations.

On September 2, 2013, the plaintiffs filed a complaint against the
defendants seeking a declaratory judgment. The plaintiffs sought “expedited
relief to provide certainty and security that the mechanisms Plaintiffs used to
conduct a reorganization on September 1, 2013 . . . of their two public sector
risk pools . . . is permissible under New Hampshire law.” The plaintiffs alleged
that in the August 22 letter, the defendants “announced a novel and overly
restrictive interpretation of RSA 292:7, stating that voluntary corporations may
only merge with or acquire other voluntary corporations, and that the transfer
of substantially all the assets and liabilities of a New Hampshire limited liability
company to a New Hampshire voluntary corporation is prohibited by RSA
292:7.”

The defendants moved to dismiss the complaint on the grounds that: (1)
the trial court’s exercise of jurisdiction is a violation of the Separation of
Powers Clause of the State Constitution; (2) the plaintiffs have circumvented
the exclusive administrative process; (3) reliance on the doctrine of primary
jurisdiction is improper as the doctrine is inapplicable under the facts and
circumstances of this case; (4) failure to defer to the secretary of state
constitutes an unsustainable exercise of discretion; and (5) the suit is barred
by sovereign immunity. Following a hearing, the trial court denied the
defendants’ motion. The trial court thereafter granted the plaintiffs’
subsequent summary judgment motion, concluding that the plaintiffs’
reorganization does not violate RSA 292:7. The defendants did not appeal the
court’s summary judgment order.

“The denial of a motion to dismiss is proper if the plaintiff’s allegations
are reasonably susceptible of a construction that would permit recovery.”
Bohan v. Ritzo, 141 N.H. 210, 212 (1996) (quotation omitted); see Jay Edwards,
Inc. v. Baker, 130 N.H. 41, 44 (1987) (court must determine whether the facts
as pled are sufficient under the law to constitute a cause of action). “Where a
plaintiff seeks a declaratory judgment, he is not seeking to enforce a claim
against the defendant, but rather a judicial declaration as to the existence and
effect of a relation between him and the defendant.” Benson v. N.H. Ins.
Guaranty Assoc., 151 N.H. 590, 593 (2004). “The remedy of declaratory
judgment affords relief from uncertainty and insecurity created by a doubt as
to rights, status or legal relations existing between the parties.” Id. at 593-94.

On appeal, the defendants argue that the trial court erred in declining to
dismiss the plaintiffs’ petition “because the instant action is barred by
sovereign immunity, and therefore, the court lacked subject matter
jurisdiction.” The defendants assert that “[a]bsent the prescription of terms on
which the state agrees to be sued or the presence of a constitutional issue, a
declaratory judgment action is improper.” The plaintiffs argue that sovereign
immunity does not bar a party “from requesting a New Hampshire court to
determine pure questions of law and, in particular, a request to interpret the
language of a statute.” The plaintiffs assert that because they seek to resolve a
question about the interpretation and application of RSA 292:7, and because
“[i]nterpretation of that statute is within the sole and exclusive jurisdiction of
the judicial branch,” sovereign immunity does not bar the petition.

Under the doctrine of sovereign immunity, the State cannot be sued in
its own courts without its consent. Tilton v. Dougherty, 126 N.H. 294, 297
(1985). The public policy considerations underlying sovereign immunity are

2
twofold: “the protection of the public against profligate encroachment on the
public treasury, and the need for the orderly administration of government,
which, in the absence of immunity, would be disrupted if the state could be
sued at the instance of every citizen.” In re Estate of Raduazo, 148 N.H. 687,
692 (2002) (quotation omitted).

We reject the defendants’ argument that a declaratory judgment action
“may not be maintained against the state absent a constitutional violation or
legislative consent.” As the trial court correctly stated in its order, “New
Hampshire courts have routinely entertained declaratory judgment actions
against the State absent a constitutional question at issue.” See, e.g., Boy’s
Club of Nashua, Inc. v. Attorney General, 122 N.H. 325, 326 (1982)
(interlocutory transfer seeking determination whether attorney general’s
interpretation of statutory definition of a raffle was correct); Linlee Enterprises,
Inc. v. State, 122 N.H. 455, 456 (1982) (declaratory judgment action testing
State’s interpretation that statute prohibits all sales of unvented space
heaters); New Hampshire Ins. Co. v. Duvall, 115 N.H. 215, 216-17 (1975)
(requesting declaratory ruling that State’s interpretation of workers’
compensation statute was invalid). The court also recognized that because
“[n]o judgment this Court could enter would result in damage to the State’s
fisc,” sovereign immunity does not bar the plaintiffs’ action.

The defendants’ reliance upon Lorenz v. New Hampshire Administrative
Office of the Courts, 152 N.H. 632 (2005), is misplaced. The plaintiffs in
Lorenz, seeking to prevent the defendants from eliminating their employment,
argued that the State had waived its immunity by enacting RSA 491:8 (1997),
which confers jurisdiction upon the superior court to enter judgment against
the State “founded upon any express or implied contract with the state.”
Lorenz, 152 N.H. at 633-35 (quotation omitted). However, because that statute
is limited to suits seeking money damages for breach of contract, we concluded
that the plaintiffs’ action seeking equitable relief was outside the “limited
waiver of immunity established by RSA 491:8.” Id. at 635. Contrary to the
defendants’ assertion, Lorenz does not support their argument that because
the plaintiffs did not challenge the constitutionality of the actions taken by the
defendants, their action was barred by sovereign immunity in the absence of
specific legislative consent.

The defendants next argue that RSA 5-B:4-a (2013) grants the executive
branch, through the department of state, exclusive authority to decide this
matter, and, therefore, the trial court’s exercise of jurisdiction constitutes a
violation of the separation of powers doctrine. See N.H. CONST. pt. I, art. 37.
The trial court rejected this argument, reasoning that “a plain reading of RSA
5-B:4-a does not suggest that the Secretary of State has exclusive authority to
determine pure questions of law as it pertains to RSA 29[2]:7, an entirely
separate statute from RSA 5-B.”

3
 Pursuant to RSA 5-B:4-a, the secretary of state has exclusive authority
and jurisdiction to “bring administrative actions to enforce . . . chapter [5-B]”
and to “investigate and impose penalties for violations of [chapter 5-B],” and
also has “all powers specifically granted or reasonably implied in order to
perform the substantive responsibilities imposed” by chapter 5-B. RSA
5-B:4-a, I(a)-(b); RSA 5-B:4-a, II. However, the issue raised in the plaintiffs’
petition for declaratory judgment is whether “the mechanisms Plaintiffs used to
conduct a reorganization . . . of their two public sector risk pools, from limited
liability companies to not-for-profit RSA ch. 292 voluntary corporations, is
permissible under New Hampshire law.” This “pure question of law” is
squarely within the inherent power of the judiciary to determine, thus raising
no issue of separation of powers. See New Hampshire Health Care Assoc. v.
Governor, 161 N.H. 378, 386 (2011) (separation of powers is violated only when
one branch of government usurps an essential power of another); Cloutier v.
State Milk Control Board, 92 N.H. 199, 201-02 (1942) (“[Q]uestions of law
belong to the judiciary for final determination, as a necessary deduction of the
required separation of the legislative, executive and judicial powers of
government.”).

The defendants assert, however, that even assuming the trial court had
jurisdiction over this action, the court’s failure to defer to the secretary of state
was an unsustainable exercise of discretion. They argue that pursuant to the
doctrine of primary jurisdiction, the trial court should have deferred because
the defendants have an “in-depth understanding of the extensive regulatory
effort” and “[t]he trial court’s intervention on this one piece of a much larger
regulatory puzzle diverted [the parties] from the task at hand.” They also
assert that deference “promotes uniformity in the interpretation of law
regarding pooled risk management programs” and “eliminates the slippery
slope that parties may go down if they are allowed to disengage from the
administrative process.”

“The doctrine of primary jurisdiction provides that a court will refrain
from exercising its concurrent jurisdiction to decide a question until it has first
been decided by the specialized administrative agency that also has jurisdiction
to decide it.” Frost v. Comm’r, N.H. Banking Dep’t, 163 N.H. 365, 371 (2012)
(quotation omitted).

[The doctrine] is concerned with promoting proper relationships
between the courts and administrative agencies charged with
particular regulatory duties. It applies to claims that contain some
issue within the special competence of an administrative agency.
Thus, under the primary jurisdiction doctrine, courts, even though
they could decide, will in fact not decide a controversy involving a
question within the jurisdiction of an administrative tribunal until
after that tribunal has rendered its decision.

4
Id. (quotation omitted). “Where, however, the issue or issues involve purely
questions of law, the matter will not be referred to an agency.” Id. (quotation,
brackets, and ellipsis omitted). We review the trial court’s decision under an
unsustainable exercise of discretion standard. Id.

The plaintiffs’ declaratory judgment action presents purely a question of
law involving statutory interpretation of voluntary corporations under RSA
chapter 292, an issue not within the defendants’ regulatory authority under
RSA chapter 5-B. Furthermore, not only did the defendants not take any
official enforcement action against the plaintiffs to which the trial court could
defer, the record supports that the defendants had no plans to do so. As the
trial court stated, in noting the “troubling” procedural posture of this case,

after first taking the position the Court has no jurisdiction to
resolve Plaintiffs’ concerns, the Defendants have admitted the
Court would have jurisdiction to address those concerns if a Final
Order were entered and it moved for enforcement - but they have
now decided to cut off all communication with Plaintiffs so that, as
a practical matter, no resolution amenable to judicial review is
available to them.

Under the circumstances presented here, we hold that the trial court
sustainably exercised its discretion to exercise its jurisdiction.

Finally, the defendants argue that the petition was not ripe, asserting
that because the August 22 letter expressed only a tentative opinion about the
legality of the plaintiffs’ proposed reorganization, it did not constitute a genuine
threat or prejudice to the plaintiffs’ interests, and therefore the trial court
should have dismissed the petition. A declaratory judgment action “is not
dependent upon proof of a wrong committed by one party against the other.”
Radkay v. Confalone, 133 N.H. 294, 296-97 (1990). Rather, such an action “is
designed to prevent not only threatened wrongs, but also uncertainty and
misunderstandings in the assertion of rights.” Beaudoin v. State, 113 N.H.
559, 562 (1973).

The plaintiffs allege in their petition that “[h]undreds of towns, cities,
school districts, and counties, as well as over 75,000 individuals, rely on
[NHMA subsidiaries] to manage and cover their risks” and that “[t]he corporate
legal status of these entities must be decided in order to remove the
uncertainty of the current dispute with the Department of State.” The plaintiffs
further allege that “the taxpayers in the member communities, as well as the
public employees, retirees, and families that rely on coverage from [the
subsidiaries] need security in knowing that their claims will be covered because
these entities are legally in compliance with State law” and that “[t]he
Department of State’s interpretation of RSA 292:7 not only puts into question
the stability of Plaintiffs’ public sector risk pools, but also the entire healthcare

5
delivery system through which Plaintiffs’ covered individuals access their
healthcare.”

The trial court found that “the Plaintiffs have a form of reorganization
that the Bureau unofficially disagrees with but has not taken any official action
with regard to it. Nonetheless, the Defendants’ unofficial letter and
intransigence has created uncertainty and . . . are causing instability in the
Plaintiffs’ public sector risk pools.” The plaintiffs’ allegations are sufficient to
establish that the dispute between the parties has caused uncertainty about
the plaintiffs’ corporate status and, accordingly, we conclude that the trial
court did not err in denying the defendants’ motion to dismiss the petition for
declaratory judgment.

Affirmed.

DALIANIS, C.J., and HICKS and LYNN, JJ., concurred.

Eileen Fox,
Clerk

6