Diane Harrison and Luv N Joy Child Care Center v. Arkansas Department of Human Services

ARKANSAS COURT OF APPEALS

NOT DESIGNATED FOR PUBLICATION

OLLY NEAL, JUDGE

DIVISION III

CA02-212

April 9, 2003

DIANE HARRISON AND AN APPEAL FROM PULASKI COUNTY

LUV `N JOY CHILD CARE CENTER CIRCUIT COURT

APPELLANTS [NO. CIV01-1029]

v.

HONORABLE JOHN WARD

ARKANSAS DEPARTMENT OF CIRCUIT JUDGE

HUMAN SERVICES

APPELLEE AFFIRMED

Appellants operated a day care center in Little Rock for several years. In 1999, they executed a two-year Child Care System Agreement with the Arkansas Department of Human Services (DHS) to provide day care for eligible (primarily low-income) recipients. For these services, appellants were paid by DHS using a voucher system. On February 6, 2001, DHS permanently disqualified appellants from participating in the federally-funded program. The disqualification was based on an administrative finding that appellants were guilty of fraud in their billing practices. Appellants appealed the disqualification to the Pulaski County Circuit Court, where it was affirmed. On appeal to this court, they contend that DHS failed to follow the provisions of the Child Care System Agreement and its own procedures in disqualifying them. They also claim that DHS's finding of fraud is not supported by substantial evidence. For the reasons set forth hereafter, we affirm.

In March 2000, DHS investigators discovered that appellants' billings to DHS for a particular time period did not correspond with the day care center attendance records. DHS concluded that appellants had billed for as many as a dozen children who had either not attended the day care center during that period or had only attended part-time but were billed as full-time. Investigator Ann Ruffin conveyed her findings to administrator Marva Bradshaw, and on August 29, 2000, Bradshaw sent a letter to appellants terminating their Child Care System Agreement effective September 11, 2000. The termination notice cited Section VI, Part C of the Agreement, which reads as follows:

The Department may at any time initiate action to cancel this Agreement for cause if it has reason to believe the Provider has not fully performed all its responsibilities in accordance with this Agreement, but only after the Provider has received ten (10) calendar days written notice.

After appellants received the notice of termination, they requested a hearing, which was held on December 8, 2000. The hearing officer found that there was sufficient evidence to establish that appellants were guilty of fraud, and she advised the Division of Child Care and Early Childhood Education to determine the period of appellants' disqualification. On February 6, 2001, the Division informed appellants that they would be permanently disqualified "from participating in any of the child care programs provided for through the Child Care Development Block Grant Funds."

Appellants petitioned the Pulaski County Circuit Court for review of the administrative decision. After a hearing, the trial judge affirmed the agency's order in all respects. This appeal followed.

Appellants' first three arguments are based on their contention that DHS did not follow its own procedures or the terms of the Child Care System Agreement in disqualifying them. In particular, they claim that either DHS procedural manuals or the Agreement itself mandated some type of pre-termination hearing or the imposition of lesser sanctions prior to disqualification.

When an agency fails to follow its own procedural rules, we may reverse on the ground that the agency's decision was "made upon an unlawful procedure," in the words of the Administrative Procedure Act. See Ark. Code Ann. § 25-15-212(h)(3) (Repl. 2002); Stueart v. Arkansas State Police Comm'n, 329 Ark. 46, 945 S.W.2d 377 (1997). An agency is bound by its own regulations. Stueart v. Arkansas State Police Comm'n, supra. The fact that a regulation as written does not provide the agency with a quick way to reach a desired result does not authorize it to ignore the regulation. Id.

Appellants direct us to the Child Care Eligibility Policy and Procedures Manuals in effect at or near the time of their disqualification, which contain specific safeguards, methods, and procedures for disqualifying a day care provider on the basis of fraud. For example, one of the manuals provides that, if a participating day care center is found to be out of compliance with the Child Care System Agreement, the center will be given a warning to implement a corrective plan and will be placed on probation, during which time the provider remains eligible to participate in the program. The other manual expressly provides that fraud, for disqualification purposes, will be determined to exist only when so found by a court or an administrative tribunal, or when a provider signs a waiver of hearing and disqualification agreement.

It is apparent that none of the manual procedures were followed in this case, and DHS admits as much. However, it claims that it simply took another avenue available to it when it terminated the Agreement based on the provisions of the Agreement itself, in particular Section VI, Part C quoted earlier. Appellants respond to this claim by noting that Section VI, Part C merely permits the DHS to "initiate action" to cancel the contract on ten days' notice. According to appellants, the term "initiate action" implies that a proceeding of some type must be commenced before cancellation occurs.

Regrettably, we are unable to reach the merits of these arguments because they were not presented to the hearing officer as a basis for relief. To preserve an argument for appellate review, the appellant must raise it before the administrative body. Arkansas Bd. of Exam'rs v. Carlson, 334 Ark. 614, 976 S.W.2d 934 (1998). We will not set aside administrative decisions on grounds that were not presented to the agency, even if they were presented to the circuit court. Id. To do so would deprive the agency of the opportunity to consider the matter, make its ruling, and state the reasons for its action. McQuay v. Arkansas State Bd. of Architects, 337 Ark. 339, 989 S.W.2d 499 (1999). Further, it would usurp the agency's function for us to set aside the agency's ruling on a ground not presented to it. See Alcoholic Beverage Control Div. v. Barnett, 285 Ark. 189, 685 S.W.2d 511 (1985).

Appellants simply did not ask the hearing officer to consider the arguments they now raise on appeal. Although they questioned one witness about the fact that they were not given a hearing before being disqualified, nothing was communicated to the hearing officer to inform her that they sought any remedy based on lack of procedural or contractual compliance by the DHS. That being the case, we do not address the issues presented.

Appellants' remaining argument is that the hearing officer's finding of fraud was not supported by substantial evidence. The rules governing judicial review of decisions of administrative agencies are well settled. Judicial review is limited in scope, and the administrative agency decision will be upheld if supported by substantial evidence, and it is not arbitrary, capricious or an abuse of discretion. Arkansas Alcoholic Beverage Control Div. v. Person, 309 Ark. 588, 832 S.W.2d 249 (1992). We review the decision of the board or agency, not the decision of the circuit court. Id. We rely heavily upon the principle that administrative agencies are better equipped than courts, by specialization, insight through experience, and more flexible procedures, to determine and analyze underlying issues. Fontana v. Alcoholic Beverage Control Bd., 11 Ark. App. 214, 669 S.W.2d 487 (1984).

Substantial evidence is valid, legal, and persuasive evidence that a reasonable mind might accept as adequate to support a conclusion, and force the mind to pass beyond conjecture. Arkansas Prof'l Bail Bondsman Licensing Bd. v. Oudin, 348 Ark. 48, 69 S.W.3d 855 (2002). We give the evidence its strongest probative force in favor of the agency's ruling. Chili's of Jonesboro, Inc. v. Arkansas Alcohol Beverage Control Div., 75 Ark. App. 239, 57 S.W.3d 228 (2001). The question on review is not whether the evidence would have supported a contrary finding but whether it supports the finding that was made. Id. We cannot displace the agency's choice between two fairly conflicting views even though the court might have made a different choice had the matter been before it de novo. Id. To establish an absence of substantial evidence it must be demonstrated that the proof before the agency was so nearly undisputed that fair-minded persons could not reach its conclusions. Id.

With these standards in mind, we set forth the events that led to appellants' disqualification. The impetus for the investigation was a communication to DHS from Daniel and Teisha Dugger. The Duggers reported that they had been recruited to place their child, Essence Cato, in appellants' day care center. Mrs. Dugger filled out an application and said she was told by one of appellants' employees to use her maiden name and not to show her husband as a member of the household. When the Duggers child was not picked up as promised, they became suspicious and called DHS. After interviewing the Duggers, the agency's fraud division began an in-depth investigation.

DHS obtained copies of appellants' attendance records for the sample period of October through December 1999. Ann Ruffin and another investigator compared those records with appellants' billings and conducted interviews with the parents and caretakers of the children for whom bills had been submitted. Numerous discrepancies were discovered. These included billings for children who, according to attendance records, had not attended the center; billings for children whose mother or grandmother told the investigators that their children had never attended the center; billings for children whose mothers or caretakers told the investigators that their children had not begun attending the center until February or March of 2000; billings for children whose parents said their children had not attended the center since August 1999; and children who were billed as full-time attendees, even though they attended part-time only. When the investigators forwarded their findings to Marva Bradshaw, she concluded that, given the widespread number of errors, the billing discrepancies were not accidental.

DHS presented the above evidence at the administrative hearing. It also presented evidence that appellants had billed DHS based on the vouchers that had been received for each child rather on whether the child was actually in attendance. Appellant Diane Harrison admitted that mistakes had been made in billings on some children, but she denied any intent to defraud the DHS. She also presented attendance records which purported to show that some of the children at issue were actually in attendance between October and December 1999, and she presented statements by some of the children's mothers that in fact their children had attended the day care center during the applicable time period.

Following the hearing, the hearing officer determined that appellants had committed fraud in attempting to receive payments to which they were not entitled. She relied on the definition of fraud contained in one of the DHS procedure manuals, which states, in pertinent part, that fraud is an attempt by a provider to receive payment to which it is not entitled and that such attempt may be made through deliberate misrepresentation of facts. On appeal, appellants argue that no fraud was committed and that there was no evidence they intentionally overcharged DHS.

A party's intent is a question of fact. See Undem v. First Nat'l Bank, 46 Ark. App. 158, 879 S.W.2d 451 (1994). Intent or state of mind is seldom capable of being ascertained by direct evidence and must usually be inferred from the surrounding circumstances. See generally Thompson v. State, 338 Ark. 564, 999 S.W.2d 192 (1999). Although Diane Harrison stated that she did not intend to commit any billing violations, as we have said in other contexts, the testimony of an interested party is always subject to dispute, and the trier of fact need not believe the testimony of any witness, especially the person most interestedin the outcome of the proceeding. See, e.g., Courtney v. Courtney, 296 Ark. 91, 752 S.W.2d 40 (1988); Cherry v. State, 79 Ark. App. 274, 86 S.W.3d 407 (2002). Further, the evidence in this case shows that DHS was billed for numerous children who had either never attended the day care center or had begun attending several months after billing for them began. While Diane Harrison claimed that certain attendance records and statements by some of the children's mothers contradicted the investigator's findings, the hearing officer set forth specific reasons why these items of evidence lacked credibility. The credibility and the weight of the evidence is within the administrative agency's discretion. Olsten Health Servs. v. Arkansas Health Servs., 69 Ark. App. 313, 12 S.W.3d 656 (2000). It is the prerogative of the agency to believe or disbelieve any witness and to decide what weight to accord the evidence. Id. We also note that, although appellants used the DHS vouchers, which authorized a child's eligibility for a certain period of time, as their billing guide, the Child Care System Agreement obligated appellants to submit billings based on services actually delivered.

In light of the foregoing, we affirm the agency's action in this case.

Affirmed.

Gladwin and Baker, JJ., agree.