Mark Henderson, Relator, vs. Independent School District No. 706, Virginia, Minnesota, Respondent.
This opinion will be unpublished and may
not be cited except as provided by
Minn. Stat. § 480A.08, subd. 3 (1998).
STATE OF MINNESOTA
IN COURT OF APPEALS
In the Matter of the Application for
License by Superior Home Care.
Filed June 20, 2000
Minnesota Department of Health
File No. 8-0900-11066-2
Patrick T. Tierney, Collins, Buckley, Sauntry & Haugh, P.L.L.P., W-1100 First National Bank Building, 332 Minnesota Street, St. Paul, MN 55101 (for relator Superior Home Care)
Mike Hatch, Attorney General, Susan A. Casey, Assistant Attorney General, 445 Minnesota Street, Suite 1200, St. Paul, MN 55101-2130 (for respondent Department of Health)
Considered and decided by Toussaint, Presiding Judge, Peterson, Judge, and Huspeni, Judge.*
U N P U B L I S H E D O P I N I O N
In this certiorari appeal from the Commissioner of Health's decision denying relator Superior Home Care a home-care license, relator argues that the decision is arbitrary and capricious. We affirm.FACTS
In 1979, Gerald Buchanan started Health Personnel, a home-care agency. When rules that required home-care agencies to be licensed were adopted in 1993, Buchanan filed an application to license Health Personnel as a Class A professional home-care agency. He received a one-year, provisional license. In October 1993, the Department of Health surveyed Health Personnel and found 26 regulatory violations. In follow-up surveys in January and November 1994, the department found that 11 of the original violations had not been corrected and found 25 additional violations. During this time, Buchanan was an owner and managerial officer of Health Personnel.
On January 4, 1994, Buchanan submitted a license-renewal application for Health Personnel in which he identified himself as the manager and agent and his daughter Amy Buchanan as the licensee and owner. After additional submissions and surveys, the department notified Health Personnel that its license would not be renewed beyond its February 28, 1995, expiration date due to its failure to satisfy license conditions. The department gave three reasons for non-renewal: (1) failure to submit verification of revenues for 1992 and 1993; (2) failure to submit a certified financial statement for 1992 and 1993; and (3) failure to confirm that Amy Buchanan was the person ultimately accountable for Health Personnel.
Health Personnel appealed, and on February 27, 1995, the department began a contested-case hearing. The ALJ recommended denying the license and affirming $8,800 in penalty assessments. The commissioner accepted the ALJ's recommendations, denied license renewal, and affirmed the penalties. The commissioner also found that Gerald Buchanan was the person actually responsible for the Health Personnel license. This court affirmed the commissioner's decision. In re Assessment & Denial of License Issued to Health Personnel/Silver Lining Assisted Lifestyle, No. C4-96-2056 (Minn. App. Mar. 18, 1997).
On February 22, 1995, while Health Personnel's appeal was pending, Buchanan applied for a home-care license for Covenant Home Care. This application was filed so that Health Personnel's clients could be transferred to Covenant if Health Personnel's license was revoked. The application listed Covenant's address as 4886 West Pike Lake Road in Duluth, identified Buchanan as the person legally responsible for the business, and listed him as Covenant's agent and sole owner. In April 1995, the department notified Buchanan that Covenant's application was denied because Buchanan had been the managerial officer of Health Personnel and had been substantially responsible for its failure to comply with governing laws and rules. Covenant appealed, and the parties agreed to continue the appeal to permit Covenant to file an amended application. No amended application was filed, and the commissioner ultimately affirmed the denial of Covenant's license on a motion for summary disposition.
While the Covenant appeal was pending, Buchanan's brother William applied to license Extended Family Home Care as a Class A professional home-care agency. The department approved his application. In January 1997, during a routine survey of Extended Family, department staff found copies of a Superior Home Care service agreement with Extended Family in all Extended Family client files. The staff also found that Extended Family's complaint procedure was in the name of Covenant PCA.
Anna Brooks began working as a personal care attendant in 1987. In 1993, Health Personnel hired Brooks as a caregiver. After two months of training, she became a case manager responsible for scheduling home-care services and reported to Buchanan. In November 1993, Brooks and Buchanan began dating, and the next year, they had a child. They continue to have a close relationship and have lived together at 4886 West Pike Lake Road in Duluth since at least January 1997.
On October 25, 1996, Brooks filed an application for a Class A home-care license for Superior Home Care. The application identified Brooks as the person legally responsible for operating the business.
Mary Absolon, the licensing and certification program manager for the Department of Health, became concerned about Brooks' application because of her employment with Health Personnel. Absolon was also concerned because Brooks' application appeared to be based on an application that Health Personnel had previously submitted to the department. In a letter to Brooks, Absolon asked if Buchanan would be involved with Superior in a position of management, supervision, or consultation and if Buchanan or his daughter Amy would have any financial interest in Superior or share in its revenue.
Brooks responded that Buchanan "has a formal agreement to provide consultation services * * * [to Superior Home Care] * * * on a daily basis." She also reported that neither Gerald nor Amy Buchanan had a financial interest in Superior but that Gerald Buchanan "will be paid as a contractor." Brooks reported that Superior's address was 4886 West Pike Lake Road in Duluth and asked that department correspondence be sent to her at that address.
In another letter, Absolon asked Brooks to submit copies of all "formal agreements" under which Gerald Buchanan would provide consultation services. Brooks responded that she and Buchanan
have a formal unmemorialized verbal agreement under which he provides advice, counsel, and administrative services to Superior Home Care, in return for payment based on a percentage of Superior Home Care's gross and net incomes.
Absolon determined that Brooks' license application should be denied because: (1) Brooks had been an employee of an agency (Health Personnel) that had lost its license due to repeated violations; (2) Buchanan would have a financial interest in Superior's revenues and profits; (3) Buchanan would be involved with Superior on a daily basis as a consultant; (4) the department was aware that Buchanan was seeking other routes of licensure; and (5) information contained in the Superior application referred to another agency that was no longer licensed. The department determined that Brooks failed to meet her burden of proving that she was entitled to a home-care provider license, and notified Brooks that her license application was denied. The denial was appealed and a contested-case hearing was held before an administrative law judge (ALJ).
Evidence presented at the hearing indicated that although Health Personnel's home-care license was not renewed in 1996 and Covenant's license application was rejected in April 1995, Buchanan continued providing personal-care-attendant services to medical-assistance recipients in Minnesota and Wisconsin under the names Health Care Personnel PCA and Covenant PCA. Buchanan's home-care businesses are, for the most part, located at 600 Superior Street in Duluth. But Buchanan and Brooks also do business from their home where billing and accounting records are kept. Buchanan's home-care business ventures involved others, including his brothers, his daughter, and Brooks. The various home-care businesses use many of the same personnel. Personnel records for the businesses are kept at 600 Superior Street and forms are shared among the businesses. At Buchanan's home, he and Brooks answered phones for Health Personnel, Covenant PCA, and Extended Family. Superior's telephone number was also used by Health Personnel and was answered at the Superior Street office where it could be forwarded to any of Buchanan's home-care businesses.
The ALJ recommended denial of the license, and, after considering exceptions filed by the parties, the commissioner denied the license.D E C I S I O N
Agency decisions are presumed correct and courts must defer to the agency's expertise. In re Petition of Space Ctr. Transp., 444 N.W.2d 575, 579 (Minn. App. 1989), review dismissed (Minn. Oct. 19, 1989). The reviewing court must uphold an agency's decision unless the decision violates the constitution, exceeds the agency's authority or jurisdiction, results from unlawful procedure or other error of law, is not supported by substantial evidence, or is arbitrary and capricious. Minn. Stat. § 14.69 (1998). The party alleging that the decision is arbitrary and capricious has the burden of proving that claim. Markwardt v. State, Water Resources Bd., 254 N.W.2d 371, 374 (Minn. 1977).
Generally, an agency decision that lacks evidence to support the conclusion is considered arbitrary and capricious because the decision "represents the agency's will and not its judgment." Beaty v. Minnesota Bd. of Teaching, 354 N.W.2d 466, 471 (Minn. App. 1984). But where the evidence supports more than one opinion on a matter, the agency's action is not arbitrary and capricious, "even though the court may believe that an erroneous conclusion has been reached." In re Rochester Ambulance Serv., 500 N.W.2d 495, 499 (Minn. App. 1993).
Brooks argues that because she met all of the requirements of the home-care licensure rules and statutes, the denial of her license application was arbitrary and capricious. Brooks contends that she cannot be denied a license based on her relationship with an individual the department does not like or because of a concern about a possible future violation of the rules. We disagree with Brooks' assertion that she met all of the requirements of the applicable statutes and rules.
The Commissioner of Health is authorized to adopt rules for the regulation of home-care providers. Minn. Stat. § 144A.45, subd. 1 (1998). The commissioner has broad powers to evaluate, license, and inspect these providers. Id., subd. 2. The commissioner shall not issue a license to a provider if an owner or managerial official of the provider was an owner or managerial official of a provider whose Minnesota license was not renewed or was revoked. Minn. Stat. § 144A.46, subd. 3(c) (1998). This prohibition applies for five years following the effective date of the nonrenewal or revocation. Id.
A license shall be denied if
the commissioner determines that an owner or managerial official, as an owner or managerial official of another licensee, was substantially responsible for the other licensee's failure to substantially comply with [home care statutes and rules].
Minn. R. 4668.0012, subp. 11.E. (1997).
The commissioner determined that "[f]or purposes of Minn. R. 4668.0012, subp. 11E, Gerald Buchanan is an owner and/or managerial official of Superior Home Care." Based on this determination, the commissioner concluded that Brooks "failed to meet her burden of proving she is entitled to a home care providers license."
Brooks does not dispute that as an owner or managerial official of Health Personnel, Buchanan was substantially responsible for Health Personnel's failure to substantially comply with home-care statutes and rules. Therefore, if Buchanan is an owner or managerial official of Superior, Minn. R. 4668.0012, subp. 11.E., required the commissioner to deny Superior a license. The issue before us is whether the commissioner erred when she found that Buchanan is an owner or managerial official of Superior.
Factual findings are reviewed under the substantial-evidence test. See In re Hibbing Taconite Co. v. Minnesota Pub. Serv. Comm'n, 302 N.W.2d 5, 9 (Minn. 1980).
The substantial-evidence test means:
1) such relevant evidence as a reasonable mind might accept as adequate to support a conclusion; 2) more than a scintilla of evidence; 3) more than some evidence'; 4) more than any evidence'; and 5) evidence considered in its entirety. There are correlative rules or principles that must be recognized by a reviewing court, such as: 1) unless manifestly unjust, inferences must be accepted even though it may appear that contrary inferences would be better supported; 2) a substantial judicial deference to the fact-finding processes of the administrative agency; and 3) the burden is upon the appellant to establish that the findings of the agency are not supported by the evidence in the record, considered in its entirety.
Space Ctr. Transp., 444 N.W.2d at 580-81 (quoting Reserve Mining v. Herbst, 256 N.W.2d 808, 825 (Minn. 1977)).
Owners of a home-care provider "are those individuals whose ownership interest provides sufficient authority or control to affect or change decisions related to the operation of the home care provider." Minn. Stat. § 144A.46, subd. 3(f) (1998).
"Owner" means a:
B. general partner;
C. limited partner who has five percent or more of equity interest in a limited partnership;
D. person who owns or controls voting stock in a corporation in an amount equal to or greater than five percent of the shares issued and outstanding; or
E. corporation that owns an equity interest in a licensee or applicant for a license.
Minn. R. 4668.0003, subp. 27 (1997).
"Managerial official" means a director, officer, trustee, or employee of a provider, however designated, who has the authority to establish or control business policy.
Minn. R. 4668.0003, subp. 20 (1997).
Brooks argues that she never intended that Buchanan would act as a managerial official of Superior, her application did not identify Buchanan as a managerial official, and she advised the department that he would not be acting as a managerial official and she would not even use him as a consultant if that would satisfy the department's concerns. She contends that the department, nevertheless, denied her application because it was concerned that it did not have the resources to monitor any potential involvement by Buchanan. Brooks concludes that the department's decision was arbitrary and capricious because limited resources cannot serve as a basis for denying a license.
Brooks' argument is based on the incorrect premise that because she told the department that Buchanan would not be a managerial official, the department must assume that Buchanan is not a managerial official until there is evidence that Brooks allowed him to act as a managerial official. But the commissioner was not required to simply accept as true Brooks' statements that Buchanan would not be a managerial official of Superior. "Assessment of witness credibility is the unique function of the factfinder." Tews v. Geo. A. Hormel & Co., 430 N.W.2d 178, 180 (Minn. 1988). It is not the function of the reviewing court to evaluate the credibility and probative value of witness testimony and choose different inferences than those chosen by the fact-finder. Skowron v. Simer Pump Co., 509 N.W.2d 160, 161 (Minn. 1993). Viewed in its entirety, the evidence supports the commissioner's determination that Buchanan is a managerial official of Superior.
The department received Superior's application about one month after the Covenant application was denied and Buchanan gave notice that he would be submitting an amended application. Absolon testified that because Buchanan knew that an application would not be approved if it identified him as an owner or indicated that he was in a position of control, she and her staff anticipated that Buchanan's amended application might be submitted in a name other than his own. This suspicion was heightened by the fact that Brooks was one of Buchanan's employees at Health Personnel. Also, Brooks' application included documents that appeared to have been based on documents previously submitted by Covenant and Extended Family, and Health Personnel's name appeared in one of the documents Brooks attached to her application.
Brooks' responses to the department's request for information about Buchanan's role increased the department's concern. She reported that Buchanan had a "formal agreement to provide consultation services * * * [to Superior] * * * on a daily basis" and asserted that he would have no financial interest in Superior. But when asked to describe the exact nature of the consultation services and to provide copies of the formal agreement, she responded that they had "a formal unmemorialized verbal agreement under which he provides advice, counsel, and administrative services." Brooks also reported that Buchanan would be paid based on a percentage of Superior's gross and net incomes. Based on Brooks' evasiveness and unwillingness to specify the exact nature and scope of Buchanan's consulting role and her intent to pay him, the commissioner could infer that Buchanan is a managerial official of Superior.
This inference is also supported by Buchanan's testimony that he, not Brooks, controlled the scope of his consultation. When asked about the specific services he would provide, Buchanan testified, "I specifically contemplated providing consultant service in its broadest sense. I would respond to her any question or request that she presented me with."
The testimony about the interrelated nature of Buchanan's home-care and personal-care assistants businesses also supports an inference that he is a managerial official of Superior. For more than 20 years, Buchanan has operated home-care businesses under various names. These businesses have shared office space, phone lines, and personnel. As recently as May 1998, clients were transferred among the businesses. License applications for the businesses contain identical attachments. And Brooks testified that Superior would operate out of her and Buchanan's residence once licensed. This evidence supports an inference that Superior's business would be integrated with Buchanan's other businesses.
Finally, the ALJ specifically found that Buchanan's testimony was not credible and that parts of Brooks' testimony were not believable. Upon reviewing the testimony, the commissioner made a similar credibility assessment. This assessment was based on the commissioner's determinations that Buchanan's testimony was evasive, overly technical and uncertain, Brooks and Buchanan gave conflicting testimony, their testimony demonstrated that they could not agree who prepared the application documents, and Brooks' testimony demonstrated that she was often unable to explain what she claimed to have written on the application. This evidence supports the commissioner's conclusion that "the application was, in fact, a cover or substitute for Buchanan's business interest and thus Buchanan is an owner or managerial official of Superior Home Care."
Because the evidence considered in its entirety, and with substantial deference to the department's fact-finding process, supports the inference that Buchanan would have authority to establish or control business policy at Superior, the commissioner's determination that Buchanan is a managerial official of Superior is supported by substantial evidence. Because a home-care license shall be denied if Buchanan is a managerial official of Superior, the decision to deny Brooks license application is not arbitrary and capricious.
* Retired judge of the Minnesota Court of Appeals, serving by appointment pursuant to Minn. Const. art. VI, § 10.