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Service Employees International Union, Local 509 v. Massachusetts Department of Mental Health

Superior Court of Massachusetts, Suffolk, Business Litigation Session

August 26, 2015

Service Employees International Union, Local 509
v.
Massachusetts Department of Mental Health et al No. 131438

MEMORANDUM OF DECISION AND ORDER ON DEFENDANTS' MOTIONS FOR JUDGMENT ON THE PLEADINGS

Janet L. Sanders, Justice of the Superior Court.

Plaintiff Service Employees International Union, Local 509 (SEIU) brings this declaratory judgment action claiming that the Department of Mental Health (DMH) violated the Pacheco Law, G.L.c. 7, § § 52-55, when it entered into contracts with nineteen privately run mental health service provider organizations (the Nineteen Providers) without first complying with the statute's requirements. The defendants, which include DMH, the Nineteen Providers, [1] and the DMH Commissioner, now move for judgment on the pleadings, contending among other things that the lawsuit is now moot because the contracts have expired. For the following reasons, this Court agrees and concludes that the defendants' Motion must be Allowed .

BACKGROUND

The following comes from the allegations, taken as true, in SEIU's Amended Complaint; public records appropriate for judicial notice; and those documents SEIU relied upon in framing its complaint. See Welch v. Sudbury Youth Soccer Ass'n, Inc., 453 Mass. 352, 354, 901 N.E.2d 1222 (2009); Jarosz v. Palmer, 436 Mass. 526, 530, 766 N.E.2d 482 (2002); Golchin v. Liberty Mut. Ins. Co., 460 Mass. 222, 224, 950 N.E.2d 853 (2011); Reliance Ins. Co. v. City of Boston, 71 Mass.App.Ct. 550, 555, 884 N.E.2d 524 (2008).

In 1993, the Legislature enacted the Pacheco Law " [t]o ensure that citizens of the commonwealth receive high quality public services at low cost, with due regard for the taxpayers of the commonwealth and the needs of public and private workers." G.L.c. 7, § 52. The statute does not prevent privatization of public services but does set forth a process which must be followed and requirements which must be met by any agency entering into a " privatization contract." These procedures include solicitation of competitive sealed bids and certification to the state auditor (the Auditor) that the contract cost will be less than the estimated expense of such services if provided by regular agency employees. G.L.c. 7, § 54. A privatization contract that does not comply with the statute's requirements is otherwise not valid. G.L.c. 7, § 54.

As to which contracts are privatization contracts and thus subject to the statute's requirements, that is set forth in G.L.c. 7, § 53 (Section 53), which defines a " privatization contract" to be:

an agreement or combination or series of agreements by which a nongovernmental person or entity agrees with an agency to provide services, valued at $500, 000 [subject to annual increase], which are substantially similar to and in lieu of, services theretofore provided, in whole or in part, by regular employees of an agency.

(Italics added.) Expressly excluded from this definition is any " subsequent agreement, including any agreement resulting from a rebidding of previously privatized service, or any agreement renewing or extending a privatization contract . . ." Id. (italics added). The statute does not prohibit an agency from making its own determination that a contract does not fall within the definition of G.L.c. 7, § 53. It does set forth a procedure, however, by which the Auditor may lodge a written objection with the agency informing it that it has not complied with the statute. Such a written objection shall be final and binding on the agency." G.L.c. 7, § 55. " An agency shall not make any privatization contract and no such contract shall be valid" if such an objection is made and not withdrawn. Id.

In late 2008 or early 2009, DMH entered into contracts with the Nineteen Providers as part of a new program, known as Community Based Flexible Supports (CBFS), intended to facilitate more personalized client assistance. The contracts were for a five-year term, with an option for one-year renewals over the following three years. Although CBFS services overlapped with services provided by DMH case managers, DMH was of the view that the services were not " substantially similar" and thus were not " privatization contracts" subject to the Pacheco Law's requirements. SEIU alleges that they were.[2] During fiscal year 2009, DMH laid off approximately one hundred case managers represented by SEIU--all layoffs resulting from the implementation of the CBFS contracts.

In early 2009, SEIU informed the Auditor of its position that the CBFS contracts were privatization contracts within the meaning of the statute and thus were not valid because DMH had not complied with the Pacheco Law. The Auditor reviewed the matter and (noting that the " issues are not easy to pinpoint and analyze due to the nature of the services") ultimately issued a memorandum in September 2010 concluding that " at least a portion of public services was moved from state employees to private contractors without following the provisions set forth in M.G.L.c. 7, sections 52-57." General Counsel Memorandum at 5 (attached to Complaint). The general counsel forwarded this memorandum to the Office of the Attorney General, which took no action. DMH made no attempt to comply with the Pacheco Law in connection with its implementation of the CBFS program.

In February 2012, approximately seventeen months after the Auditor's determination, SEIU filed a single-count complaint seeking a declaratory judgment that DMH had violated the Pacheco Law and that the portions of the CBFS contracts which related to services substantially similar to those performed by the case managers were invalid. It also requested equitable relief including reinstatement of the laid-off case managers and back pay for those case managers. In March 2013, this Court (Hopkins, J.) granted DMH's motion for judgment on the pleadings, concluding that SEIU did not have direct or associational standing to pursue its declaratory judgment claim and that it had failed to add necessary parties, i.e., the Nineteen Providers. SEIU appealed. The SJC held that, while SEIU had failed to add necessary parties, the union had direct standing to bring its claim. See Service Emp. Int'l Union, Local 509 v. Department of Mental Health, 469 Mass. 323, 14 N.E.3d 216 (2014). It vacated and set aside the judgment of dismissal, remanding the case to permit SEIU to amend its complaint to add necessary parties.

SEIU amended the complaint in October 2014 to include the Nineteen Providers. In the meantime, the original CBFS contracts had expired. DMH and the Nineteen Providers have entered into one-year renewal agreements since then, the most recent commencing in June 2015.

DISCUSSION

A petition for declaratory relief must be based on a live, actual controversy. See G.L.c. 231A, § 1; Quincy City Hosp. v. Rate Setting Comm'n, 406 Mass. 431, 439, 548 N.E.2d 869 (2009) (" Declaratory judgment is a vehicle for resolving actual, not hypothetical, controversies, with the declaration issued intending to have an immediate impact on the rights of the parties"); see also Massachusetts Ass'n of Indep. Agents and Brokers, Inc. v. Commissioner of Ins., 373 Mass. 290, 292, 367 N.E.2d 796 (1977). Here, the CBFS contracts that are the subject of the Amended Complaint expired in June 2014. Any declaration regarding their past ...


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