DEPARTMENT OF COMMUNITY AFFAIRS DIVISION OF CODES AND STANDARDS BUREAU OF ROOMING AND BOARDING HOUSE STANDARDS v. EDEN HOUSE, INC.

(NOTE: The status of this decision is .)
 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3311-05T23311-05T2

DEPARTMENT OF COMMUNITY AFFAIRS,

DIVISION OF CODES AND STANDARDS,

BUREAU OF ROOMING AND BOARDING

HOUSE STANDARDS,

Petitioner-Respondent,

v.

EDEN HOUSE, INC.,

Respondent-Appellant.

_________________________________

 

Submitted March 23, 2009 - Decided

Before Judges Carchman, R. B. Coleman and Sabatino.

On appeal from a Final Agency Decision of the Department of Community Affairs, Division of Codes and Standards, Docket Nos. X00048, X00021, X00036, X04081 and X04129.

Dennis J. Cummins, Jr., attorney for appellant.

Anne Milgram, Attorney General, attorney for respondent (Melissa Raksa, Assistant Attorney General, of counsel; Barbara Berreski, Deputy Attorney General, on the brief).

PER CURIAM

Eden House, Inc. ("Eden House"), formerly a for-profit Residential Health Care Facility ("RHCF"), appeals a final agency decision of the Acting Commissioner of the Department of Community Affairs ("DCA") revoking appellant's license to operate the RHCF and imposing various fines and penalties. The Acting Commissioner's decision sustained detailed findings by an Administrative Law Judge ("ALJ"), issued after lengthy hearings, concluding that Eden House had persistently violated numerous State regulations at its facility and that the administrative sanctions sought by the State were justified. We affirm.

I.

The underlying facts that emerged at the administrative hearings principally arose out of State inspections of Eden House dating back to 1999. Although the record is extensive, we summarize the facts pertinent to our review.

Eden House, owned and operated by Harold Katz, is a for-profit corporation. It owns a four-story building in East Orange that housed, at times, as many as eighty residents. On that site, Eden House operated an RHCF for people with psychiatric conditions, pursuant to a license originally issued by the Department of Health and Senior Services ("DOH") under the Healthcare Facilities Planning Act ("HCFPA"), N.J.S.A. 26:2H-1 to -26. The residents were mainly, perhaps exclusively, low-income persons. Eden House's main source of funding was through its residents' supplemental security income ("SSI"), a significant portion of which was assigned to the facility.

Pursuant to Eden House's licensing as an RHCF, the DOH periodically surveyed Eden House to ensure that the license requirements were being met. To that end, the DOH conducted inspections of Eden House relevant to this appeal on January 13 and 21, 1999; June 1999; February 7 through 9, 2000; May 15 and 16, 2000; August 1 and 2, 2000; July 19 through 21, 2004; and October 29, 2004.

During the January 1999 inspection and the re-inspection in June 1999, the DOH found several deficiencies. It observed that Eden House was failing to meet minimum staffing requirements. In addition, the DOH found that several Eden House residents were not being provided with the required initial screening by a healthcare professional. As a result, Eden House was assessed a penalty of $3,000. Eden House appealed that discrete penalty. The contested matter was heard by ALJ Margaret M. Monaco, who found that the penalty was appropriate and therefore sustained the DOH's assessment. Eden House paid that $3,000 penalty without any further appeal.

The second set of relevant inspections took place in February 2000. During these inspections, the DOH found that Eden House was not providing the required minimum hours of resident supervision. In particular, such supervision was not provided on January 8, 9, 22, 29, and 30, 2000, in violation of N.J.A.C. 8:43-4.1(c) and N.J.A.C. 8:43-6.1. In addition, the DOH found that Eden House had failed to provide the level of nursing care per resident (.20 hours per week) mandated by N.J.A.C. 8:43-9.1(e). Specifically, the DOH found that at the time of the inspection in February 2000, a nurse had not visited the facility at all during the preceding two weeks. Additionally, the documentation available to the DOH did not substantiate whether any nurse had visited Eden House between December 22, 1999, and January 3, 2000.

The DOH also determined in February 2000 that Eden House failed to comply with N.J.A.C. 8:43-9.2(c), (d), (e), and (f), regulations which require a nurse to provide updates to each resident's physician, a nursing assessment, and monitoring notes. DOH specifically found that at least six residents did not receive any such assessments, and that in some instances no follow-ups to residents had been provided.

As a result of these citations from February 2000, Eden House was assessed a $6,000 fine, an amount which reflected a doubling of penalties for repeat violations of the same regulations.

In May 2000, the DOH conducted a re-inspection of Eden House to determine whether the February 2000 deficiencies still existed. During that re-inspection, the DOH found that Eden House failed to provide the minimum number of on-duty employees required by N.J.A.C. 8:43-4.1(c). Specifically, the DOH found that from April 28 through May 15, 2000, Eden House lacked adequate staffing. The DOH also found that (1) Eden House failed to provide patients with an initial nurse's assessment; and (2) several patients lacked documentation as to the reasons for their admission. Moreover, Eden House had not provided follow-up monitoring or correspondence with the patients' doctors. Additionally, the DOH could not complete its daily census of residents in May 2000, due to Eden House's inadequate record-keeping.

Based on this May 2000 re-inspection, Eden House was assessed a $6,000 penalty, an amount that reflected a tripling of some of the fines for repeat violations of the same nature as those identified in the 1999 inspections.

The DOH conducted further inspections of Eden House from July 31 through August 2, 2000. On this occasion, the DOH found that Eden House had failed to update the designated physician when a change of a resident's medical circumstances occurred, as required by N.J.A.C. 8:43-9.2(c) and (e). The DOH also found that one female resident had lost significant weight, and the resident's physician was not informed. The DOH additionally found that the resident, who had very few teeth, was being served food that she could not chew.

Second, the DOH found in the July/August 2000 inspection that Eden House had failed to provide adequate supervision of residents during their self-administration of medication. Moreover, Eden House's records failed to include information relating to instances where residents had failed, or had refused, to take their medication.

Third, the DOH found that the residents' medications were not being stored in a locked storage area, as required by N.J.A.C. 8:43-10.3. In one instance, the DOH found fifteen pills kept in an unlabeled container. This was in violation of N.J.A.C. 8:43-10.1, which requires that prescription drugs be kept in their original containers.

Fourth, Eden House had failed to ensure that all of its employees had received a two-step Mantoux tuberculin skin test, in violation of N.J.A.C. 8:43-16.4(a).

Fifth, the DOH found that Eden House had failed to ensure that its menus adequately addressed the residents' nutritional needs, as required by N.J.A.C. 8:43-8.3(a)(1). For example, the food list for one patient, who had been medically prescribed an 1800-calorie diet, did not reflect that calorie restriction. Moreover, Eden House did not have an 1800-calorie diet on its menu. Another resident's dietary requirement (for reduced salt) was not noted on the dietary list. Similarly, "no added salt" diets prescribed to two other residents were not specified on the menu.

Finally, the DOH discovered in the July/August 2000 inspection numerous deficiencies related to sanitary conditions, in violation of N.J.A.C. 8:43-8.2(f). The DOH specifically identified the following:

Flies in the kitchen and dining room;

Water damage on the wall in the dining room;

No soap at the hand-washing sink;

Water-stained ceiling tiles;

A freezer that failed to store food at zero degrees Celsius;

Floor damage in the kitchen;

Soil buildup on the silverware and food service cart;

Lack of sanitation-agent kit;

Heavily soiled pots in the clean storage area;

A hole in the wall behind the freezers;

Three pounds of contaminated margarine;

Rodent droppings on a shelf near food; and

Dried food residue on a covered slicing machine

For these assorted violations uncovered during the July/August 2000 inspections, Eden House was assessed $9,250 in penalties. This was a combined amount that reflected both fines for new violations, as well as a tripling of fines for repeat violations.

The DOH conducted another inspection of Eden House from July 19 through 21, 2004. During this inspection, the DOH found that Eden House failed to ensure that residents had adequate and clean beds, pillows, chairs, reading lights, storage, bed linens, washcloths and towels, and windows with shades, as required by N.J.A.C. 8:43-7.3(a)(1) through (8). The DOH noted that twenty-six patient rooms had violations of that particular provision. The agency specifically found that some rooms had soiled bedding, torn bedding, torn pillows, soiled pillows, missing chairs, missing window shades, broken light fixtures, missing bed frames, soiled box springs, collapsed beds, and bed bugs.

In addition, the DOH inspectors observed in July 2004 that the security alarm system for the facility did not work and had been non-functioning for some time, in violation of N.J.A.C. 8:43-15.1. The DOH also found that there was significant rodent and roach infestation. The DOH learned that extermination services were only provided to the common areas on site, despite the prevalence of infestation problems in other areas. One resident showed a DOH representative that he had been bitten by bed bugs.

Moreover, the DOH observed flies and roaches throughout the facility. Rooms 102, 201, 202, 205, 211, 212, 301, 302, 303, 304, 306, 307, 310, 311, and 313 all exhibited such infestation. Mouse droppings were found in rooms 203, 206, 304, 308 and 310. The inspectors also observed mouse holes in several of those rooms. In room 207, black mold was found in the patient's closet. In room 208, the wall above the patient's bed was water-damaged. The inspectors also found mold and residue throughout the bathrooms on the second and third floors. Some rooms were also missing soap and toilet paper.

As a result of these numerous deficiencies, Eden House was assessed $12,500 in penalties by letter dated August 11, 2004. The letter informed Eden House that its new patient admissions had to be curtailed, and that it must implement a Directed Plan of Correction ("DPOC"), as formulated by the agency. Specifically, the DPOC required Eden House to obtain the services of: (1) an exterminator; (3) a housekeeping contractor; (3) a security system contractor; and (4) a building contractor, by no later than August 18, 2004. Eden House responded in a letter dated August 13, 2004, requesting an extension of time to achieve compliance. An extension was granted, but only for those items that were not included in the DPOC.

In an attempt to comply with the DPOC, Eden House entered into a contract with an electrical contractor, Affiliated Electrical Services, Inc., on August 20, 2004; with John Standish Perrin, a building contractor; and with Tri-City Peoples, a housekeeping service, on August 19, 2004. However, when the DOH determined that the conditions on site were still deficient as of September 23, 2004, the agency learned that Tri-City had yet to undertake any cleaning services because Eden House was attempting to negotiate a better contract. Moreover, the DOH also learned that Perrin had never been paid a retainer for his services and that he also had yet to do any work at Eden House.

The last inspection the DOH conducted at Eden House took place on October 29, 2004. On this particular review, the DOH found that the facility's housekeeping, security system, and building contractor deficiencies had not been remedied. The DOH also found uncorrected deficiencies in the following areas:

Smoking violations;

Lack of bedroom items in clean condition and good repair;

Lack of supervision of self-administered medication;

Failure to provide pharmacist reports;

Failure to conduct monthly fire drills;

Failure of employees to receive tuberculin tests;

Failure to have a working emergency communication system;

Thirteen instances of improper monitoring of patients;

Roaches and other insects; and

Broken windows, flooring, doors, toilets, bathroom tiles, stained walls, stained ceilings, peeling paint and broke, or missing smoke detectors

Consequently, on November 17, 2004, the DOH issued to Eden House a notice of revocation of its license. Eden House appealed the proposed revocation to the Commissioner of the DOH and, on December 30, 2004, the matter was referred to the OAL. The appeal concerning the revocation was consolidated with the discrete hearings requested by Eden House for each of the previous findings of deficiencies.

In summary, the following penalties and sanctions that underlie the present appeal were assessed:

Inspection Date

Penalty Letter

Penalty Issued

OAL Docket No.

Feb. 2000

April 6, 2000

$6000

HLT 09725-01N

May 2000

June 20, 2000

$6000

HLT 03498-04N

Aug. 2000

Sept. 1, 2000

$9250

HLT 09724-01N

July 2004

Aug. 11, 2004

$12000

HLT 09550-04N

Oct. 2004

Nov. 17, 2004

Revocation

HLT 12220-04N

The OAL referred the contested cases, as consolidated, to ALJ Edith Klinger for hearings. Meanwhile, shortly prior to those scheduled hearings, Eden House filed an order to show cause in the Law Division on May 23, 2005, seeking to restrain the OAL proceedings from commencing. Eden House argued, in part, that the State had unconstitutionally failed to meet its alleged funding obligations to Eden House and its residents.

On June 2, 2005, the court denied the motion and stayed the Law Division proceedings, pending resolution of the OAL hearings before ALJ Klinger. In particular, the trial court's order stayed further proceedings in the Law Division "pending the conclusion of proceedings before [the] [D]epartment [of Community Affairs], including [an] appeal if taken[.]" Despite having its license revoked, Eden House's residents remained in the facility during the hearings and the administrative appeals process.

The OAL hearings took place over ten intermittent days in June, July, and August 2005. The DOH presented the testimony of four State witnesses who were directly involved with the inspections conducted at Eden House over the five-year period in question. Those DOH witnesses were: (1) Nancy Williams, a registered nurse who conducts surveys of healthcare facilities; (2) Julie Baker, a registered dietician who had been employed by the DOH as a public health consultant, nutritionist, and surveyor of healthcare facilities since 1987; (3) Janet Kotkin, a registered nurse who had conducted surveys for the DOH since 2000; and (4) Rita Comerford, a registered nurse who, at the time of her testimony, was the program manager for health care facilities within the DOH. These four witnesses catalogued the conditions of Eden House over the five-year period commencing in 1999 and ending with the October 2004 inspection. In particular, Williams and Baker participated in all of the inspections of Eden House that are at issue on this appeal.

In its defense, Eden House presented the testimony of Katz, the owner of Eden House; Robert Lieberman, the administrator of Eden House; and Sarah Kimber, the manager of Eden House.

Katz testified at length over several days. On direct examination, Katz stated that he had personally operated Eden House initially through 1995, when he turned the facility over to an individual named James Mendez. He added that Mendez later "went bankrupt," which forced Katz to "take the facility back."

Katz indicated that Eden House was financed primarily through the SSI income of the residents. He added that there are no residents who pay Eden House separate amounts, apart from their SSI benefits.

Katz asserted that changes in the State's regulations for RHCFs, e.g., the requirement for an on-site registered nurse, led to financial and regulatory problems, because of the difficulty that Eden House had with obtaining nurses. With respect to the staff at Eden House, Katz testified that he maintained three housekeepers, who spent, on average, forty-five minutes per day in each resident's room.

Katz testified that Eden House has problems with maintaining its building because of the "severely ill population." Many of the residents suffer from schizophrenia, who, according to Katz, would frequently "stuff up the toilets" and knock holes in walls. Some residents burned holes in the carpets with cigarettes and, on one occasion, a patient slashed couches with a knife.

Katz addressed the various inspections that triggered the notices of violations. He recalled receiving a notice of deficiency for the on-site nurse requirement in 1999. He claimed that residents were never actually at risk because the facility's management "always gave them concern." Katz asserted that he attempted to comply with the State's requirement that Eden House allocate one hour of "staffing person per resident per day."

Regarding the February 2000 inspection, Katz maintained that he and Lieberman were "on the ball," and that they were able to eliminate most of the deficiencies that had then been cited by the DOH. He recalled, however, having a meeting with Comerford in which he attempted to explain to the DOH that Eden House had "money" problems, and that "it was losing money trying to meet [the State's] standards."

With respect to the July 2004 inspection, Katz recalled that Lieberman had received the list of deficiencies from the DOH and had prepared a corrective plan. Katz, in turn, created a checklist for the staff to use in correcting the deficiencies.

Katz conceded that Eden House had been unable to address the cited deficiencies with respect to "[h]ousekeeping, sanitation, safety and maintenance." He stated that the facility was unable to address everything identified by the DOH

[b]ecause it was impossible for us to do everything here without extending tremendously more money than we had already invested in the facility, so --- and since our population was down, the decision that we made was that some of the rooms, particularly on the third floor, that we would close those rooms off . . . [.]

Katz emphasized that in 2003, 2004, and 2005, Eden House operated at a loss.

Despite these financial problems, Katz contended that he was able to rectify most things on the State's deficiency list, except for those things pertaining to sanitation and housekeeping. He stated that he was able to meet some of the minimum requirements by "draw[ing] on my own resources and that was [drawn] on my home equity and on my retirement funds."

Lieberman, the Eden House administrator, also testified at length, over several hearing dates. Lieberman was hired in 1999, in an effort to bring Eden House into compliance with the State's regulations. Lieberman recounted the efforts he made in that regard, but he, like Katz, contended that inadequate funding had made it difficult for the RHCF to operate. Lieberman testified that he spent approximately four hours a day at Eden House and that he received no remuneration for his services directly from Eden House.

With respect to Eden House's failure to obtain the services required by the State's 2004 correction plan, Lieberman stated his belief that the facility was only required under the plan to obtain what he termed as "[c]onsultative services." Lieberman claimed that Nurse Comerford had informed him of that distinction orally in a telephone conversation. He conceded, however, that no documentation provided by the DOH had directed Eden House to obtain only consultative services.

Kimber, the facility's manager, testified that she had been employed by Eden House since 1986. She noted that she was a high-school graduate and that she had served in various capacities at Eden House from housekeeper to cook, and finally was promoted to manager. She contended that she had been present for every inspection conducted by the DOH after her hire.

With respect to the substantive issues underlying the violations, Kimber acknowledged that there were times when she had been unable to fulfill her duties to monitor the administration of medicine. She further testified that some of the odors, (e.g., from urine) were a result of the residents not taking care of themselves. According to Kimber, during 2004 family members removed some residents due to adverse media coverage about the facility. Kimber also conceded that over the years Eden House had "problems" with the nurse requirement; specifically, that the assigned nurse was not working the appropriate hours.

After the record in the OAL closed, but before ALJ Klinger issued her findings, Eden House filed a motion in the Law Division seeking to lift the stay in the court action and proceed with its verified complaint. The Law Division denied the application on November 10, 2005. Eden House then moved before ALJ Klinger, requesting that she postpone her decision on the merits. That request was also denied.

On December 20, 2005, ALJ Klinger issued a written decision upholding the revocation of Eden House's license and sustaining the imposition of fines and penalties. In her extensive seventy-two-page decision, ALJ Klinger meticulously traced the chronology of Eden House's regulatory violations, including the earlier violations confirmed in ALJ Monaco's prior decision. As a general observation, the ALJ noted that "[i]t is impossible to fully describe in this Initial Decision the squalid and unsafe conditions in which the residents of Eden House are forced to live."

After detailing the individual violations at length, ALJ Klinger made the following pertinent overall findings:

Based upon the record in this matter, I [find] that the facility failed to comply with licensing requirements, posing an immediate and serious risk of harm to the health, safety, and welfare of residents, and the facility failed to correct these violations according to an approved plan of corrections or subsequent to the imposition of other enforcement remedies issued pursuant to the rules. Eden House was the subject of five penalty actions and two curtailments of admissions without producing any genuine improvement in the deplorable conditions found in the facility. Following each and every annual survey and revisit, it submitted plans of correction which were approved by the Department but resulted in no significant changes.

[(Emphasis added).]

More specifically, the ALJ identified several violations that "constituted the immediate and serious risk of harm to the residents":

There were no functioning security systems for much of the time, leaving residents at risk of intruders or fire. This situation was exacerbated by the fact that fire drills were not conducted regularly so that residents could be quickly and safely evacuated in an emergency. Residents' health was not adequately monitored, so that medical assistance could be provided in a timely manner. There was inadequate monitoring of medications prescribed by residents' physicians, so that there was no way to tell if a resident was being under-dosed, overdosed, or having a significant side effect or no effect from prescribed medication. Therapeutic diets were not regularly provided as ordered by physicians. Employees and residents were not regularly tested for tuberculosis, so that residents were unnecessarily exposed to disease. Smoking was taking place in areas of the facility without operating smoke detectors or alarm systems and with blocked fire exits. The residents were fed meals prepared in unsanitary conditions, with food only marginally safe due to rodent and insect infestation and inadequate refrigeration. The residents were forced to live in deteriorating rooms and bathrooms with leaking water, dirt, mold, and vermin. Carbon monoxide detectors were not always functional. This list is not meant to be exhaustive of the immediate and serious risks of harm to the residents uncovered at the facility.

[(Emphasis added).]

The ALJ particularly found Comerford to be a credible witness, and rejected Lieberman's claim that "consultative services" were all that the State had required to cure the cited deficiencies. The ALJ found that the "alleged discussions of interpretation, if they existed at all, were another unilateral and futile attempt . . . to stall the attempts of the Department to enforce the regulations and bring the facility into compliance." That finding was "supported by the series of plans of correction approved by the Department but never implemented by Eden House following the annual surveys and revisits[.]" The finding was also supported by the fact that the professional contractors selected by Eden House "never provided 'immediate corrective services' by supervising Eden House employees," and that "the same violations were found months later during the October 29, 2004 revisit." According to the ALJ:

[I]f the facility honestly believed its [more narrow] interpretation of the Directed Plan requirements was accurate, it immediately should have begun to implement it to avoid being in violation. The word "immediate" was never subject to interpretation.

With respect to Eden House's substantive position concerning the violations, ALJ Klinger noted:

The facility offered no defenses to the violations cited above, except that it could only afford to make token repairs and corrections to stave off the inevitable closure; that the closure was the result of political pressure; that this facility and/or this type of facility was being treated differently tha[n] other facilities; and that closure would violate the rights of the mentally ill.

The ALJ found none of these asserted defenses to be persuasive.

For these reasons, ALJ Klinger concluded that Eden House's license "should be revoked immediately pursuant to N.J.A.C. 8:43E-3.9(a)(1)." The ALJ found that such a drastic sanction was warranted for a number of reasons:

I [find] that Eden House has demonstrated a pattern and practice of violating licensing requirements, posing an immediate and serous risk of harm to the health, safety, and welfare of residents. As shown by the evidence, the facility has a history of repeated violations of identical or substantially-related licensing regulations during at least three consecutive surveys and was issued five civil monetary penalties pursuant to N.J.A.C. 8:43E-3.4 for both related and unrelated violations on three or more consecutive surveys. The facts supporting this pattern and practice were found at great length above and will not be repeated here. The immediate and serious risks of harm to the residents were stated at length in the paragraph above relating to the revocation pursuant to N.J.A.C. 8:43E-39(a)(1) and will not be repeated again.

In addition to the license revocation, the ALJ sustained the agency's imposition of monetary penalties. The penalties totaled $33,250, calculated as follows: (1) $6,000, pursuant to the violations notice dated April 6, 2000; (2) $6,000, pursuant to the notice of June 21, 2000; (3) $9,250, pursuant to the notice of September 1, 2000; (4) $11,000, pursuant to the notice of August 11, 2004; and (5) $1,000, pursuant to the notice of August 27, 2004.

Eden House filed exceptions to ALJ's Klinger's decision with the DCA's Acting Commissioner. The exceptions largely tracked the contentions that Eden House had made at the administrative hearings. These arguments included, but were not limited to, its claims that the violations were mainly insubstantial, and that the residents had not suffered any serious harm; that the facility and its operations had been severely constrained by funding problems; and that the State's funding levels were unconstitutional.

On January 17, 2006, the Acting Commissioner ratified ALJ Klinger's initial decision, with one minor correction of a date mentioned in the decision. The following day, January 18, 2006, the residents who were still living at Eden House were removed from the facility. This appeal ensued.

During the pendency of its appeal, Eden House moved to remand the matter back to the Law Division, or, alternatively, the OAL, relying upon Maisonet v. Dept. of Human Serv., Div. of Family Devel., 140 N.J. 214 (1995) (detailing procedures for referring to the Law Division certain civil rights claims that are related to state administrative proceedings). The DCA opposed the remand. We denied the remand application, and the parties thereafter filed their merits briefs with this court. In the interim, no stay of the agency's final decision has been requested or issued.

On appeal, Eden House principally argues that the agency's final decision must be reversed because the governmental funding provided to its residents, and paid in part to the facility, is constitutionally inadequate. Eden House further argues that the State deprived it and its former residents of equal protection of the laws by affording more generous daily benefits to residents in assisted living facilities than to residents in RHCFs who, by comparison, are primarily mentally ill and more likely to be minorities. Eden House contends that it should have been afforded the opportunity in the OAL or, alternatively, in the Law Division, to develop these constitutional arguments more fully.

Eden House further contends that the regulatory deficiencies cited by the State did not affect the health, safety and welfare of its residents, and that it adequately attempted to rectify those deficiencies within its fiscal constraints.

As to the penalties imposed, Eden House claims that they are disproportionate to the violations involved and are fundamentally unfair, harsh, and oppressive. It seeks to have the Acting Commissioner's order modified to eliminate or reduce the penalties, and to be granted a temporary license "to be on probation for a period of time."

II.

We begin our analysis by repeating well-settled principles governing the judicial review of State administrative agencies. Our role as an appellate court is confined to four inquiries:

(1) whether the agency's decision offends the State or Federal Constitution; (2) whether the agency's action violates express or implied legislative policies; (3) whether the record contains substantial evidence to support the findings on which the agency based its action; and (4) whether in applying the legislative policies to the facts, the agency clearly erred in reaching a conclusion that could not reasonably have been made on a showing of the relevant factors.

[George Harms Constr. Co. v. N.J. Tpk. Auth., 137 N.J. 8, 27 (1994).]

Generally, "[o]ur function is to determine whether the administrative action was arbitrary, capricious or unreasonable." Burris v. Police Dep't, Twp. of W. Orange, 338 N.J. Super. 493, 496 (App. Div. 2001) (citing Henry v. Rahway State Prison, 81 N.J. 571, 580 (1980)); see also Aqua Beach Condo. Ass'n v. Dep't of Cmty. Affairs, 186 N.J. 5, 16 (2006). "The burden of demonstrating that the agency's action was arbitrary, capricious or unreasonable rests upon the [party] challenging the administrative action." In re Arenas, 385 N.J. Super. 440, 443-44 (App. Div.), certif. denied, 188 N.J. 219 (2006); Barone v. Dep't of Human Servs., 210 N.J. Super. 276, 285 (App. Div. 1986), aff'd, 107 N.J. 355 (1987).

Furthermore, "'[a]n administrative agency's interpretation of statutes and regulations within its implementing and enforcing responsibility is ordinarily entitled to our deference.'" Wnuck v. N.J. Div. of Motor Vehicles, 337 N.J. Super. 52, 56 (App. Div. 2001) (quoting In re Appeal by Progressive Cas. Ins. Co., 307 N.J. Super. 93, 102 (App. Div. 1997)). "Absent arbitrary, unreasonable or capricious action, the agency's determination must be affirmed." Wnuck, supra, 337 N.J. Super. at 56 (citing R & R Mktg., L.L.C. v. Brown-Forman Corp., 158 N.J. 170, 175 (1999)). Even so, we are not bound by the agency's opinions on matters of regulatory law. Levine v. State, Dep't of Transp., 338 N.J. Super. 28, 32 (App. Div. 2001) (citing G.S. v. Dep't of Human Servs., 157 N.J. 161, 170 (1999)); see also Mayflower Sec. Co. v. Bureau of Sec., 64 N.J. 85, 93 (1973).

The applicable licensure statute, the HCFPA, is governed by the following declaration of public policy:

It is hereby declared to be the public policy of the State that hospital and related health care services of the highest quality, of demonstrated need, efficiently provided and properly utilized at a reasonable cost are of vital concern to the public health. In order to provide for the protection and promotion of the health of the inhabitants of the State, the State Department of Health shall have the central responsibility for the development and administration of the State's policy with respect to health planning, hospital and related health care services and health care facility cost containment programs, and all public and private institutions, whether State, county, municipal, incorporated or not incorporated, serving principally as residential health care facilities, nursing or maternity homes or as facilities for the prevention, diagnosis, or treatment of human disease, pain, injury, deformity or physical condition, shall be subject to the provisions of this act.

[N.J.S.A. 26:2H-1.]

Under the HCFPA, Eden House was required to obtain a license before it could operate as an RHCF. N.J.S.A. 26:2H-12(a)(1). In order to obtain that license, Eden House had to demonstrate that "the premises, equipment, personnel, including principals and management, finances, rules and bylaws, and standards of health care service are fit and adequate and there is reasonable assurance the health care facility will be operated in the manner required by [the HCFPA] and rules and regulations thereunder." N.J.S.A. 26:2H-12(b)(2).

Moreover, because Eden House was a healthcare facility, a "quasi-public entit[y]," it was "subject to extensive regulation in the public interest." In re Health Care Admin. Bd., 83 N.J. 67, 78 (1980). In that regard, N.J.S.A. 26:2H-13 provides, in pertinent part, that the State may revoke a license for failure to comply "with the provisions of this act, or the rules and regulations promulgated hereunder." See also New Jersey Ass'n of Health Care Facilities v. Finley, 168 N.J. Super. 152 (App. Div. 1979), aff'd, 83 N.J. 67 (1980).

An RHCF provides "sheltered care and services, in a homelike setting, to residents who do not require skilled nursing care, in order to assist residents to maintain personal interests and dignity as well as to protect their health and safety." N.J.A.C. 8:43-1.2. To that end, the administrative Code provisions under Chapter 43 of Title 8, create a detailed framework of "minimum" standards "with which a residential health care facility located with, and operated by, a licensed health care facility must comply in order to be licensed to operate in New Jersey." Ibid.

The various regulatory provisions considered during the inspections, and under which Eden House was imposed penalties, are detailed in the ALJ's decision and need not be repeated here. They include diverse subjects such as resident supervision, N.J.A.C. 8:43-4.1(c); staffing levels, N.J.A.C. 8:43-6.1(a)(2); smoking restrictions, N.J.A.C. 8:43-6.1(a)(6); compliance with the State Sanitary Code, N.J.A.C. 8:43-8.2(f); bedding, linens and furniture, N.J.A.C. 8:43-7.3(a); the provision of nursing care, N.J.A.C. 8:43-9.1 and -9.2; prescription medications, N.J.A.C. 8:43-10.1; housekeeping, laundry, pest control and maintenance services, N.J.A.C. 8:43-15.1; and vermin eradication, N.J.A.C. 8:43-15.3.

If an RHCF fails to comply with these and similar requirements, the State has the authority to revoke a previously-granted license. The grounds for revocation are specified at N.J.A.C. 8:43E-3.9(a)(1) and (2):

A [n]otice of the [p]roposed [r]evocation of a health care facility license may be issued in the following circumstances:

1. The facility has failed to comply with licensing requirements, posing an immediate and serious risk of harm or actual harm to the health, safety, and welfare of patients or residents, and the facility has not corrected such violations in accordance with an approved plan of correction or subsequent to imposition of other enforcement remedies issued pursuant to these rules; [or]

2. The facility has exhibited a pattern and practice of violating licensing requirements, posing a serious risk of harm to the health, safety and welfare of residents or patients. A pattern and practice may be demonstrated by the repeated violation of identical or substantially-related licensing regulations during three consecutive surveys, or the issuance of civil monetary penalties pursuant to N.J.A.C. 8:43E-3.4 or other enforcement actions for unrelated violations on three or more consecutive surveys . . . [.]

[(Emphasis added).]

We need not dwell at length upon the substance of the multiple regulatory violations at Eden House identified on several occasions by the agency's inspectors and proven during the OAL hearings. The deficiencies are replete and, in many respects, graphic. Eden House admits to several of those violations, particularly those observed during the 2004 inspections.

We are satisfied that there is substantial---indeed, overwhelming---credible evidence in the record to sustain the ALJ and the agency's findings of regulatory violations. See Mazza v. Bd. of Trs., 143 N.J. 22, 25 (1995) (reciting the "substantial evidence" requirements for administrative agency decisions).

Eden House submits that the regulatory violations cited by the agency did not, on the whole, pose "an immediate and serious risk of harm or actual harm to the health, safety and welfare" of its residents. N.J.A.C. 8:43E-3.9(a)(1). It suggests that some of the deficiencies observed by the inspectors were self-inflicted by the residents themselves. It also contends that the violations were substantially technical and bureaucratic in nature. In this regard, Eden House asserts that "[w]hat [its staff] lacked in record keeping and paper work, they made up in warmth and loving concern for the residents." While acknowledging that its staff "could not always maintain the letter of the [State] regulations," Eden House asserts that it did "meet the spirit [of those provisions], and the health, safety and welfare of the residents were never compromised."

The ALJ and the agency rejected Eden's minimalist characterization of its numerous regulatory violations, and so do we. The record depicts a facility that fell woefully short of the baseline standards of health and safety imposed by applicable statute and regulations. The ALJ had more than sufficient proof to justify her pointed finding that the residents at Eden House had been forced to live in "squalid and unsafe conditions," and that those conditions posed a serious and immediate risk of harm. The fact that no residents were compelled to be evacuated prior to the revocation of the facility's license, or that the staff members allegedly treated them in a kind manner, does not diminish the seriousness of the cited violations. We therefore sustain the factual findings of the ALJ, as ratified by the Acting Commissioner, in all respects.

We discern no error in the sanctions imposed by the agency. Revocation of Eden House's license to operate a RHCF was entirely appropriate, given the ALJ's findings of non-compliance posing "an immediate and serious risk of harm" to the residents, and the facility's failure to correct those violations in accordance with the State's plan of action. N.J.A.C. 8:43E-3.9(a)(1).

Nor do we find error in the monetary penalties imposed. The penalty amounts were justified in light of what the ALJ characterized as the "deplorable" conditions on site. The penalty amounts assessed were within the permissible ranges. The agency acted within its allowable discretion in enhancing the penalty for certain successive violations. See N.J.A.C. 8:43E-3.4(a)(9) (permitting the doubling or tripling of penalties for a licensee's repeat violations of the same regulation within a twelve-month period). We reject Eden House's contention that the agency unfairly imposed penalties in 2004 for violations that occurred in 2000. The fact that the agency deferred in imposing penalties until a re-inspection in 2004 revealed the facility's continued non-compliance does not make the agency's enforcement approach arbitrary or capricious.

We also reject Eden House's contention that the aggregate penalties are disproportionate to the violations. On the contrary, the penalties were reasonable "as applied to the specific facts involved." In re Garay, 89 N.J. 104, 115-17 (1982) (applying a fact-specific reasonableness test in evaluating claims of disproportionality, recognizing that "[t]here is no precise formula" for making that determination). We are mindful that Eden House contends that it sustained operating losses of approximately $20,000 in 2003; $47,000 in 2004; and $67,000 in 2005. Nevertheless, that limited presentation of alleged financial hardship does not render unfair the penalties imposed for these multiple and persistent violations that endangered the health, safety and welfare of the Eden House residents. Cf. Renan Realty Corp. v. Community Affairs Dept., 182 N.J. Super. 415, 420-21 (App. Div. 1981) (observing, in an analogous setting involving violations of the Hotel and Multiple Dwelling Law, that alleged financial hardship alone would not justify exempting the property owner from its regulatory obligations). That being said, we defer to the agency's discretion in considering the possibility of installments or other terms for payment of the total penalties due over time, if appellant's current and anticipated financial circumstances warrant such consideration.

We next turn to Eden House's contention that it should be excused from its non-compliance with the applicable regulations because the State funding for its low-income residents was allegedly inadequate or comparatively inferior to the State benefits received by patients in assisted living facilities. Eden House styles these arguments as constitutional claims, invoking general principles of equal protection and due process.

Preliminarily, we note that SSI is essentially a federal program that provides monthly benefits to certain needy individuals who are age sixty-five or older, blind or disabled. See 42 U.S.C.A. 1382f. The State participates in the SSI Program by virtue of its election to also participate in the Medicaid Program. See N.J.S.A. 30:40D-2; see also SSI Medical Servs. v. HHS, Div. of Medical Assistance & Health Servs., 146 N.J. 614, 617 (1996). Through the joint efforts of the Federal and State governments in SSI and Medicaid, the State is to establish reimbursement rates to health care providers that are "reasonable and adequate to meet the costs that are incurred by efficiently and economically operated providers to provide services in conformity with applicable State and Federal laws, regulations, and quality and safety standards." 42 C.F.R. 447.253(b)(1).

Federal SSI rates are updated annually. 42 U.S.C.A. 1382F(b). The new rates are published in the Federal Register. Ibid. The Federal Government does not require that states provide an additional supplement to the Federal SSI amount, although many states, including New Jersey, elect to do so.

In New Jersey, "[f]or eligible individuals, a [S]tate supplement is provided in order to increase the net countable income up to the state standard for the respective living arrangement." In a 2008 report, the New Jersey Department of the Public Advocate summarized this funding process:

Most RHCF residents receive federal Supplemental Security or Disability payments totaling $623 per month. The [S]tate of New Jersey supplements this payment by $210 per month for those people living in RHCFs, for a total monthly state/federal payment of $833. Of this amount, $731 goes to the operator and $102 to the resident for personal needs. Most people living in RHCFs receive their health care through either Medicare or Medicaid and many RHCFs receive modest reimbursements from those agencies for medication monitoring or other medical services. In the end, with all sources of funding considered, most RHCF providers receive about $24 a day per resident.

[New Jersey Department of the Public Advocate, Public Advocate Unveils Measure to Reduce Overcrowding in State Psychiatric Hospitals (Mar. 5, 2008), http://www.state.nj.us/publicadvocate/news/2008/approved/080305_rhcf_report.html.]

Eden House contends that the SSI benefits paid to it by the government on behalf of its residents, including the New Jersey supplement portion, were insufficient to enable it to achieve compliance with the health, safety and welfare regulations for RHCFs. By comparison, it alleges that the government pays $81.00 daily for residents in assisted living facilities and pays $71.00 daily for residents in comprehensive personal care homes. Eden House also intimates that these benefit differentials created racially discriminatory impacts because the majority of residents in RCHFs are minorities.

Eden House's funding arguments are problematic for several reasons. First, there is an entirely separate administrative mechanism for a aggrieved party to challenge the sufficiency of State funding of benefits for needy individuals and institutions. The Department of Human Services, ("DHS") not the DCA or the former DOH, is the State agency that is responsible for establishing Medicaid and supplemental SSI rates in New Jersey. See N.J.S.A. 44:7-85 to -93. The DHS is not a party to the present appeal, nor was it a party to the OAL proceedings.

If Eden House wished to contest the sufficiency of current SSI benefit rates, it could have brought a timely rulemaking challenge at the time those rates were annually promulgated by the DHS. See, e.g., Atlantic City Medical Center v. Squarrell, 349 N.J. Super. 16, 20-21 (App. Div. 2002) (outlining the analogous administrative procedures for challenging the sufficiency of new State reimbursement rates for hospitals, in the Medicaid program); United Hospitals Med. Ctr. v. State, 349 N.J. Super. 1, 6-8 (App. Div. 2002) (same). Eden House presumably was well aware of the new annual benefit rates at the time of their adoption, either through the notice-and-comment process or through a comparison of the checks it was regularly receiving from the State on behalf of its SSI-eligible residents.

A challenge to the DHS's adoption of new annual reimbursement rates could have been brought in the Appellate Division within forty-five days of adoption, pursuant to Rule 2:2-3. For reasons that are not clear from the record, Eden House failed to pursue such an appropriate challenge to funding levels. Instead, Eden House waited until it was prosecuted by the DOH (later the DCA) for regulatory violations, and then raised the alleged funding inadequacies as a putative defense.

Eden House cites to no published New Jersey case, and we are aware of none, that allows a health care facility to avoid compliance with health and safety standards by arguing that it is not receiving sufficient State funding to enable it to accomplish what the substantive regulations require it to do. In its brief, Eden House cites an assortment of cases arising from other jurisdictions, none of which appear to stand for the proposition advanced by Eden House here. The out-of-state cases it relies upon generally involve constitutional or statutory claims by patients and relatives raising broad-based challenges to the State's rate levels, rather than health care providers charged with regulatory violations who raised funding inadequacies as a defense to their non-compliance.

It cannot be overlooked that Eden House is a for-profit commercial enterprise. If the State's funding levels for its residents proved to be insufficient for the facility to maintain proper health and safety standards, the facility was presumptively obligated to either devote its own resources to meet that shortfall (as Katz apparently did, at least in part), or cease operating as a licensee.

These preliminary observations aside, we are cognizant, as a procedural matter, that Eden House has not been afforded the opportunity to develop its funding-related contentions on a plenary basis, either in the OAL or in the Superior Court. Nor have its claims of equal protection and discriminatory treatment been litigated fully. We decline to exercise original jurisdiction to resolve those issues in the first instance. Although we have considerable doubts that Eden House's constitutional claims and funding arguments will ultimately pass muster, we do not foreclose those arguments from being developed and conclusively adjudicated in another forum. See, e.g., Jones v. Dept. of Community Affairs, 395 N.J. Super. 632, 634 (App. Div. 2007) (noting the mechanism for developing a record concerning constitutional claims tied to administrative litigation). There are also issues of Eden House's standing, which the State has raised only obliquely in its appellate brief.

Consequently, we preserve Eden House's opportunity to move to reopen the Law Division action, as was envisioned by the express language of the Law Division's stay order, for the limited purpose of developing a record on its constitutional and funding-related claims and obtaining a disposition from the Law Division on those issues. The aggrieved party of a final disposition by the Law Division may then file a new appeal of that discrete ruling, if it so chooses, with this court within forty-five days.

In the meantime, the DCA's final agency decision, which we affirm today subject to this one caveat, shall remain in force in all respects. We specifically reject Eden House's request that it be granted a temporary probationary license in the interim.

We have fully considered the balance of Eden House's arguments, and conclude that they all lack sufficient merit to be discussed in this opinion. R. 2:11-3(e)(1)(D) and (E).

The final agency decision of the Acting Commissioner of January 17, 2006 is affirmed, without prejudice to Eden House filing a motion to reopen the related Law Division action so as to enable the trial court to develop the record and to render a disposition, solely concerning the discrete issues of unconstitutionality and funding identified in this opinion. We
do not retain jurisdiction.

Pursuant to State Reorganization Plan 002-2005, jurisdiction of the DOH was transferred to the DCA in May 2005. See 37 N.J.R. 1105(a).

The exact date(s) of the June 1999 inspection(s) are not disclosed in the record.

Eden House appealed the assessment and the matter was referred to the Office of Administrative Law ("OAL") as a contested case and assigned docket number HLT-9725-01. This is part of the present appeal.

Eden House appealed the assessment and the matter was referred to the OAL as a contested case and assigned docket number HLT-9724-01, which is also part of this appeal.

That section provides that RHCF facilities must comply with Chapter XII of the State Sanitary Code, codified at N.J.A.C. 8:24-1.1 to -10.2.

Eden House appealed the assessment and the matter was referred to the OAL as a contested case and assigned docket number HLT-3498-04. This matter is also included in the appeal.

Eden House appealed the assessment and the matter was referred to the OAL as a contested case and assigned docket number HLT-9550-04. This assessment is also part of the present appeal.

Lieberman acknowledged, however, that he was affiliated with two other healthcare facilities ("Horizon" and "Community"), with which Katz was also affiliated, and that through that separate employment, he was paid a salary.

Kimber and Katz both attempted on direct examination to describe an unannounced visit to Eden House that had been conducted by a State Senator with television cameras running. The ALJ curtailed this testimony, deeming it irrelevant to the substantive issues of the facility's regulatory non-compliance.

See Department of Human Services http://www.nj.gov/humanservices/dfd/ssils.html (last visited April 15, 2009).

In its brief on appeal, Eden House addresses "how the State contributes to each type of facility." Eden House reports that it received $21 per day per resident. However, the State reports $731 paid to RHCFs per month per resident, or approximately $24 per day per resident. Ibid. We need not resolve this numerical discrepancy here.

We do not adopt or reject these financial comparisons because the record is not developed adequately for us to assess their reliability.

See Wilder v. Va. Hosp. Ass'n, 496 U.S. 498, 110 L. Ed. 2d 455, 110 S. Ct. 2510 (1990) (1990); Duquesne Light Co. v. Barasch, 488 U.S. 299, 102 L. Ed. 2d 646, 109 S. Ct. 609 (1989); Alabama Nursing Home Asso. v. Harris, 617 F.2d 388 (5th Cir. 1980); Kansas Health Care Ass'n, Inc. v. Kansas Dep't of Social and Rehabilitation Servs., 754 F. Supp. 1502 (D. Kan. 1990), rev'd on other grounds, 958 F.2d 1018 (10th Cir. 1992); Illinois Hospital Asso. v. Illinois Dep't of Public Aid, 576 F. Supp. 360 (N.D. Ill. 1983); Thomas v. Johnston, 557 F. Supp. 879 (W.D. Tex. 1983); State v. Pena, 855 P.2d 805 (Colo. 1993); Y.A. v. Bayh, 657 N.E.2d 410 (Ind. Ct. App. 1995); Country Club Home, Inc. v. Harder, 620 P.2d 1140 (Kan. 1980); Doe v. Dinkins, 600 N.Y.S.2d 939 (N.Y. Sup. Ct. 1993); Ohio Acad. of Nursing Homes v. Barry, 564 N.E.2d 686 (Ohio 1990); Bahian v. Commonwealth, Dep't of Public Welfare, 493 A.2d 803 (Pa. 1985).

(continued)

(continued)

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A-3311-05T2

May 1, 2009