New Bern eye surgeon appeals ruling in challenge against CON law

A New Bern eye surgeon will ask the North Carolina Court of Appeals to review last month’s ruling upholding the constitutionality of North Carolina’s certificate-of-need law.

Dr. Jay Singleton filed his notice of appeal Tuesday.

A bipartisan three-judge trial court panel rejected Singleton’s CON law challenge on Dec. 12. The panel announced its decision less than one month after lawyers for Singleton and the North Carolina Department of Health and Human Services argued about the CON law in a 2 ½-hour hearing in Raleigh.

Singleton contends that the CON law violates his state constitutional rights by preventing him from performing most surgeries at his New Bern vision center. He must send patients instead to CarolinaEast, a hospital that holds the region’s only CON.

A unanimous state Supreme Court had ruled in October 2024 that Singleton could move forward with his lawsuit challenging the law.

A health care provider must secure a CON from state government before opening a hospital or other types of medical facility. Providers also need a CON to purchase the most expensive medical equipment.

“Having considered the motions, pleadings, other filings of record, all other competent evidence of record, briefs and arguments of counsel, and relevant case law, this Panel determines N.C.G.S. § 1181E-175 et seq to be facially constitutional,” according to an 11-page order Superior Court Judges Jeffery Foster, Jacqueline Grant, and Troy Stafford filed last month.

Foster and Stafford are Republicans from Pitt and Iredell counties, respectively. Grant is a Democrat from Buncombe County. State Supreme Court Chief Justice Paul Newby assigned them to hear the case.

“Plaintiffs’ allege the CON Law, on its face, violates their economic liberty and right to earn a living in violation of Article I, Sections 1 and 19 of the North Carolina constitution,” the judges wrote.

“[T]o survive constitutional scrutiny under Sections 1 and 19, the challenged state action ‘must be reasonably necessary to promote the accomplishment of a public good, or to prevent the infliction of a public harm,’” the order explained. “This test involves a ‘twofold’ inquiry: ‘(1) is there a proper governmental purpose for the statute, and (2) are the means chosen to effect that purpose reasonable?’”

In a 2010 case called Hope – A Women’s Cancer Center v. State, the state Appeals Court “previously upheld a challenge to CON Law under Sections 1 and 19 of the North Carolina constitution, determining that the purpose of the CON Law was proper and means chosen were reasonable,” the judges wrote. “The Court of Appeals held that the ‘purpose in enacting the CON law was to protect the health and welfare of North Carolina Citizens by providing affordable access to necessary health care,’ and that purpose is ‘legitimate.’”

“Defendants’ motion to dismiss regarding Plaintiffs’ fruits of labor and law of the land claims is granted,” the panel added.

The judges rejected Singleton’s argument that the CON law provides a monopoly and “exclusive emolument” to CarolinaEast.  

“While it is true that nine operating rooms in the Craven, Jones, Pamlico service area are owned by one provider CarolinaEast patients in the service area have access to a total of 80 operating rooms owned by nine different providers in the service areas bordering the Craven, Jones, Pamlico service area,” the order explained. “Competition is not stifled, and individuals are free to choose from any of those nine providers.”

“Plaintiffs’ arguments focus on their own inability to open an operating room without a certificate of need, but those allegations taken as true do not demonstrate that the CON Law is invalid in all circumstances,” the judges wrote. “The existence of numerous healthcare providers who have obtained certificates of need statewide confirms that the law operates constitutionally in a wide range of applications. Plaintiffs fail to address how it is facially unconstitutional in these applications.”

“Considering the merits, Plaintiffs’ facial challenge to CON Law cannot overcome the high bar imposed by the presumption of constitutionally given to legislative acts,” the panel concluded.

Singleton’s lawyer responded to the Dec. 12 ruling. “In 2023, the North Carolina Supreme Court granted review in this case to resolve foundational questions about the North Carolina Constitution’s protections for the right to earn a living,” said Joshua Windham of the Institute for Justice in an email to Carolina Journal. “Last fall, the court sent us back down to the trial court to proceed through a three-judge panel because the allegations of our complaint, if proven, could render the CON law unconstitutional across the board.”

“We have now complied with that instruction. The three-judge panel appears to have largely adopted the government’s legal theories, which remain as wrong today as they have always been. We look forward to taking this fight back to the North Carolina Supreme Court, which we expect will treat the CON law with the genuine skepticism it deserves under the North Carolina Constitution,” Windham added.

The judges listened to arguments on both sides of the case on Nov. 18.

“He’s seeking the right to use his property in the way he wants,” Windham said in representing Singleton.

Derek Hunter, the state special deputy attorney general representing DHHS, responded that the CON law doesn’t block Singleton at all.

Health care providers need a CON to open an operating room. The law doesn’t apply to a “procedure room.” Singleton is “free to perform” any surgeries he likes in the procedure room in his existing facility, Hunter argued.

Windham labeled Hunter’s remarks about a “procedure room loophole” as an “11th-hour argument” that never emerged before as the dispute proceeded through North Carolina courts since 2020.

State regulators are making the argument now “to kick this case off the docket,” Windham argued. Accepting the loophole argument would prevent judges from addressing the issue of whether the CON law violates North Carolina’s constitutional ban on monopolies and exclusive privileges.

Windham “would be delighted” If DHHS would agree to a consent decree that Singleton could not face legal consequences or lose his license for performing a full range of surgeries at his office, the lawyer said. Windham didn’t expect the state to agree to that outcome, he added.

“Dr. Singleton’s claims have been summarily dismissed by every court that has heard the merits,” Hunter argued.

Judges must presume that the 1977 law is constitutional, Hunter added. “Plaintiff’s claim falls woefully short” of proving otherwise.

The North Carolina Supreme Court struck down a prior CON law in 1973 in a case called Aston Park. Hunter and Windham disagreed about the impact of that more than 50-year-old ruling.

DHHS believes Aston Park does not apply to the current CON law. The current law included extensive findings justifying the health care restrictions, Hunter argued.

“It does not matter if the findings of fact are true,” he said. “The question is whether the General Assembly believed they were reasonable.”

“Even if the findings are proven to be untrue, that doesn’t mean the plaintiffs prevail,” Hunter added.

It’s not the courts’ job to decide whether the General Assembly’s economic policy decisions are “bad or unwise,” he said.

Singleton’s lawyer responded that the current CON law violates the state constitution for the same reasons the high court identified in 1973. “It’s Aston Park 2.0,” Windham said.

State legislators who adopted the CON law in the 1970s “reasonably believed” that the law would help provide “safe, affordable access” to health care, Hunter argued. The law requires health care providers to acquire a CON from state government before building a hospital, add beds, open other types of health care facility, or even purchase the most expensive medical equipment.

“How do less services lead to lower costs?” Foster asked. “That’s contrary to basic rules of economics.”

Health care is “unlike any other market,” Hunter responded. “It’s unique.”

Singleton argues that the CON law forces him to send most patients to a nearby hospital, CarolinaEast, for surgeries. CarolinaEast holds the only CON in a three-county region for the affected services.

“Doesn’t that in effect give the hospital a monopoly?” Grant asked.

Windham labeled the CON law a “monopolist’s dream” later in the session.

Stafford compared Windham’s citation of the Aston Park precedent to a “sword” facing the state’s “shield” of the 2010 Hope case that upheld the current CON law.

Grant also responded to Hunter’s argument about the distinction between an operating room and a procedure room. “Why doesn’t everyone call it a procedure room to get around a CON?” she asked. “Is that a loophole?”

Foster suggested that the “real reason” for the CON law was hospitals’ concern that other providers would “cherry-pick” lucrative services while leaving them to treat patients who can’t afford to pay for services.

Grant questioned Windham on that issue, asking him to respond to the state’s argument that the CON law ensures health care for rural and underserved areas.

State Treasurer Brad Briner and the State Employees Association of North Carolina filed a joint brief in November supporting Singleton’s CON challenge. The John Locke Foundation and a group of self-described CON academic scholars also supported Singleton.

Atrium Health, Cape Fear Valley Health System, the North Carolina Healthcare Association, the North Carolina Health Care Facilities Association, the Association for Home and Hospice Care of North Carolina, the North Carolina Senior Living Association, and Bio-Medical Applications of North Carolina filed a joint brief supporting DHHS.

Singleton filed a motion last August for partial summary judgment in the case. The court filing reserved Singleton’s right to argue at a future date that the CON law is unconstitutional “as applied” to the particular facts of his case. An as-applied challenge would proceed before a single trial judge.

A unanimous state Supreme Court ruled in October 2024 that Singleton could move forward with his lawsuit. That decision reversed lower courts that had ruled against Singleton. In an unsigned unanimous four-page opinion, the court directed the case back to the trial level.

Justices said a trial court must take into account two unanimous state Supreme Court decisions. One dealt with claims that Kinston engaged in racial discrimination when choosing which city properties to condemn. The other involved Ace Speedway’s claim that state officials violated the Alamance County racetrack owners’ rights when targeting the track for a shutdown during the COVID-19 pandemic.

“Plaintiffs brought claims alleging that the Certificate of Need law violates their rights under the Monopolies Clause, Exclusive Emoluments Clause, and Law of the Land Clause of the North Carolina Constitution,” according to the state Supreme Court opinion. “Plaintiffs described their constitutional claims as ‘as-applied’ challenges in the complaint. Both the trial court and the Court of Appeals accepted plaintiffs’ characterization of these claims and evaluated the claims as as-applied challenges.”

“[W]e conclude that plaintiffs’ complaint asserts both facial and as-applied challenges,” Supreme Court justices wrote.

A facial constitutional challenge targets a law in its entirety. The plaintiff asserts that there is no circumstance in which a court could uphold the law as constitutional. An as-applied challenge asserts only that the targeted law is unconstitutional when considering the facts of a particular plaintiff’s complaint.

“Here, plaintiffs’ complaint alleges facts that could undermine the Certificate of Need law’s constitutionality far beyond the particular circumstances of these plaintiffs,” according to the Supreme Court opinion. “Indeed, in their supplemental briefing, plaintiffs acknowledge that, should they prevail, the ‘need for relief that extends beyond [plaintiffs] will likely arise here’ and ‘will likely entail facial relief.’”

“We agree. The complaint contains allegations that, if proven, could render the Certificate of Need law unconstitutional in all its applications,” Supreme Court justices wrote.

Labeling the case both a facial and as-applied challenge is a “crucial determination,” justices wrote. State law requires facial challenges to go before a three-judge Superior Court panel. Singleton had argued his case initially before a single trial judge.

“Because the trial court and the Court of Appeals mistakenly treated plaintiffs’ claims exclusively as as-applied challenges, we vacate the decision of the Court of Appeals and remand this matter to the Court of Appeals with instructions to vacate the trial court’s judgment and remand for further proceedings,” Supreme Court justices ordered.

“Because we vacate the decision of the Court of Appeals on this basis, we need not address plaintiffs’ challenges to that decision asserted in the briefing before this Court,” Supreme Court justices added. “However, for the benefit of the trial court on remand, we disavow the Court of Appeals’ jurisdictional analysis concerning the exhaustion of administrative remedies and direct the trial court to this Court’s recent decisions in Askew v. City of Kinston … and Kinsley v. Ace Speedway Racing, Ltd.”

Singleton cited the Ace Speedway ruling in a September 2024 filing with the state Supreme Court. His lawyers wrote that the Ace Speedway ruling served as an “additional authority” supporting the surgeon’s legal arguments.

“The court’s decision in Kinsley reaffirms that in North Carolina, economic liberty matters,” Windham told CJ at the time. “The court held that when the state restricts our right to earn a living, we can use evidence, under the fruits of their labor clause, to show the restriction is not ‘reasonably necessary’ to protect the public. That’s exactly the same test the court applied in 1973 when it struck down the state’s first certificate of need law under the law of the land clause.”

“Why does that matter? It means that courts can’t dismiss challenges to economic laws just because government lawyers utter the words ‘public health,’” Windham said. “It means that the state’s supposed reasons for destroying your business aren’t gospel; you can challenge them with facts and show that — in the real world — the law isn’t meaningfully serving the public.”

The John Locke Foundation and constitutional law scholar John Orth filed an earlier friend-of-the court brief supporting Singleton in November 2023.