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Endress v. Iowa Department of Human Services

Court of Appeals of Iowa

June 19, 2019

TERRI ENDRESS, Plaintiff-Appellee,

          Appeal from the Iowa District Court for Polk County, Karen A. Romano, Judge.

         The Department of Human Services appeals, and Terri Endress cross-appeals, the district court's ruling on judicial review. AFFIRMED IN PART, REVERSED IN PART, AND REMANDED.

          Thomas J. Miller, Attorney General, and Tabitha J. Gardner, Assistant Attorney General, for appellant.

          Trent W. Nelson of Sellers Galenbeck & Nelson, Des Moines, for appellee.

          Considered by Vogel, C.J., and Potterfield and Doyle, JJ.

          DOYLE, JUDGE.

         This appeal, like Pfaltzgraff v. Iowa Department of Human Services, No. 18-0189, 2019 WL__, at *__ (Iowa Ct. App. June 19, 2019), also filed today, concerns attempts by the Iowa Department of Human Services (DHS) to recoup payments to childcare providers under the Child Care Assistance Program (CCAP). The district court granted Terri Endress's petition for judicial review after determining the DHS violated Endress's procedural due process rights and exceeded its statutory authority in promulgating the recoupment rules, which it determined are unconstitutionally vague. The DHS appeals. Endress cross-appeals the district court's determination that she is not entitled to attorney fees.

         I. Background Facts and Proceedings.

         Endress was a registered childcare provider who had signed an agreement allowing the DHS to pay her directly for childcare services she provided to families eligible for the CCAP. In July 2014, the DHS sent a notice to Endress stating it would cancel the agreement because she submitted claims for which she was not entitled. Specifically, the DHS alleged that on three occasions, Endress had more children present in her daycare than was allowed under her child home development registration. Endress appealed the decision to cancel her CCAP agreement. The agency issued a final decision in November 2014, affirming the cancellation.

         While her appeal was pending, Endress elected to continue receiving CCAP payments. Both the notice of cancellation of her CCAP agreement and the notice of her appeal set out her right to continue receipt of CCAP payments during the appeal process but cautioned, "Any benefits you get while your appeal is being decided may have to be paid back if the Department's action is correct."

         On April 3, 2017, the DHS sent Endress a notice alleging she owed in excess of $16, 000 for CCAP payments made from July 2014 to November 2014 while her appeal was pending. Endress appealed, and the agency affirmed the computation of the overpayment.[1] She petitioned for judicial review, and the district court granted her petition after determining the DHS exceeded its statutory authority in promulgating the recoupment provisions of its administrative rules, the rules are unconstitutionally vague, and the rules violated Endress's procedural due process rights. However, it denied Endress's request for attorney fees.

         II. Scope and Standard of Review.

         "In a judicial review action on appeal, our job is to determine whether in applying the applicable standards of review under section 17A.19(10) [(2017)], we reach the same conclusions as the district court." Colwell v. Iowa Dep't of Human Servs., 923 N.W.2d 225, 238 (Iowa 2019), reh'g denied (Mar. 8, 2019).

We can grant relief from agency action if the action is "[u]nconstitutional on its face or as applied or is based upon a provision of law that is unconstitutional on its face or as applied." We do not give any deference to the agency with respect to the constitutionality of a statute or administrative rule because it is entirely within the province of the judiciary to determine the constitutionality of legislation enacted by other branches of government. Accordingly, we review constitutional issues in agency proceedings de novo.

NextEra Energy Res. LLC v. Iowa Utils. Bd., 815 N.W.2d 30, 44 (Iowa 2012) (alteration in original) (internal citations omitted).

         III. Procedural Due Process.

         "The Fourteenth Amendment's procedural protection of property is a safeguard of the security of interests that a person has already acquired in specific benefits." Bd. of Regents v. Roth, 408 U.S. 564, 576 (1972). The district court concluded the DHS violated Endress's right to procedural due process by seeking recoupment without providing adequate notice. The DHS challenges this determination.

         A. Existence of a Property Right.

         In analyzing a procedural due process claim, we first look to see if a protected liberty or property interest is at issue. See Bowers v. Polk Cty. Bd. of Supervisors, 638 N.W.2d 682, 691 (Iowa 2002). The district court determined that the DHS has a statutorily created obligation to pay for provider services during an appeal. The DHS challenges this determination, contending no property right is at issue because Endress was not entitled to the CCAP payments.

         Property interests "are created and their dimensions are defined by existing rules or understandings that stem from an independent source such as state law- rules or understandings that secure certain benefits and that support claims of entitlement to those benefits." See Roth, 408 U.S. at 576. Such sources include "statutes, regulations, and ordinances, or express or implied contracts." Lee v. Halford, 540 N.W.2d 426, 429 (Iowa 1995) (quoting Orloff v. Cleland, 708 F.2d 372, 377 (9th Cir. 1983)). A statute or administrative regulation creates a property interest if it contains "explicit mandatory language," such as "specific directives to the decisionmaker that if the regulations' substantive predicates are present, a particular outcome must follow." Kentucky Dep't of Corrections v. Thompson, 490 U.S. 454, 463 (1989) (addressing the existence of a liberty interest); see also Town of Castle Rock v. Gonzales, 545 U.S. 748, 756 (2005) (citing Thompson for the proposition that "a benefit is not a protected entitlement if government officials may grant or deny it in their discretion" in addressing the existence of a property interest); Washington Legal Clinic for the Homeless v. Barry, 107 F.3d 32, 36 (D.C. Cir. 1997) ("To determine whether a particular statute creates a constitutionally protected property interest, we ask whether the statute or implementing regulations place 'substantive limitations on official discretion.'"). "When a government must follow mandatory laws or regulations which limit its discretion to make a decision in any way or for any reason, those laws or regulations can create a property right which is deprived if those regulations are not followed." Brands v. Sheldon Comm. School Dist., 671 F.Supp. 627, 631 (N.D. Iowa 1987) (citing Hewitt v. Helms, 459 U.S. 460, 471-72 (1983)).

Iowa Code section 237A.13(4) states:
The department's billing and payment provisions for the program shall allow providers to elect either biweekly or monthly billing and payment for child care provided under the program. The department shall remit payment to a provider within ten business days of receiving a bill or claim for services provided. However, if the department determines that a bill has an error or omission, the department shall notify the provider of the error or omission and identify any correction needed before issuance of payment to the provider. The department shall provide the notice within five business days of receiving the billing from the provider and shall remit payment to the provider within ten business days of receiving the corrected billing.

         The use of the term "shall" indicates the legislature is imposing a duty. Iowa Code § 4.1(30); Kopecky v. Iowa Racing & Gaming Comm'n, 891 N.W.2d 439, 443-44 (Iowa 2017). Accordingly, section 237A.13 requires the DHS to either (1) notify providers of an error in billing within five days of receipt a bill and before issuing payment or (2) pay for the services provided within ten business days of receipt of the bill. The language of section 237A.13(4) contains an explicit mandate and limits the DHS's exercise of official discretion, as is required to create a property interest.

         Additionally, the DHS's own regulations require that it pay for services provided pending a final decision on appeal from a proposed adverse action. See Iowa Admin. Code r. 441-7.9.[2] On this basis, both state law and administrative regulation create a property interest in the payments made under the CCAP.

         The DHS notes that section 237A.13(8) states:

Nothing in this section shall be construed as or is intended as, or shall imply, a grant of entitlement for services to persons who are eligible for assistance due to an income level or other eligibility circumstance addressed in this section. Any state obligation to provide services pursuant to this section is limited to the extent of the funds appropriated for the purposes of state child care assistance.

         It argues this provision makes it clear that the legislature did not intend to direct the DHS to make CCAP payments, only to ensure that the payments were timely reconciled once bills were submitted to the DHS. Although we agree that section 237A.13(8) provides the DHS with discretion concerning which families it provides CCAP benefits, this discretion does not extend to the payments made to CCAP providers. This subsection addresses "persons who are eligible for assistance," not providers. Iowa Code § 237A.13(8). Once the DHS has exercised its discretion under section 237A.13(8) to determine which ...

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