Arkansas Department of Human Services v. Arkansas Child Care Consultants, Inc.

Tom Glaze, Justice. Arkansas Child Care Consultants, Inc. (ACCCI) was an enrolled sponsor for the Child and Adult Care Food Program (CACFP) for fiscal year 1991-92 when it learned of another lunch food program named the Summer Food Service Program (SFSP). On April 13, 1992, ACCCI submitted an application to be a sponsor in the SFSP as well, but in doing so, it supplied false information to the qualifying agency, Special Nutrition Program (SPN) of the State Department of Human Services. Because of the false information, SPN, by letter dated May 7, 1992, denied ACCCI’s application, listing the reasons and concluding the misrepresentations constituted a “serious deficiency” under the federal law.1 SPN informed ACCCI of its right to appeal the denial and enclosed a copy of the appeal procedures. ACCCI received this correspondence on May 11, 1992. On June 2, 1992, SPN further notified ACCCI that its 1991-92 CACFP contract would be terminated effective June 30, 1992 because its SFSP application had been found seriously deficient. Under 7 CFR § 226.6(c), ACCCI had fifteen days within which it could challenge by appeal SPN’s May 7 denial decision, but it failed to do so. Actually, ACCCI had fifty days (May 11 to June 30) to correct or explain the false information it had given SPN, but it never did so within that period. ACCCI did ultimately appeal SPN’s termination of ACCCI’s participation in the 1991-92 CACFP program, and on August 7, 1992, an administrative hearing was held on that issue. ACCCI’s executive director testified and basically acknowledged that false information had been supplied on its SFSP application, but blamed it on the lack of time within which ACCCI had to complete the application. She also claimed officials told her an appeal of ACCCI’s termination would be “in vain.” SPN’s official testified that SPN had supplied ACCCI with the appeal procedures, stating federal regulations required such information when the state denies an application or termination of an institution. By order dated August 25, 1992, the hearing officer found, among other things, that (1) ACCCI admitted it had supplied false information on its SFSP application, (2) ACCCI’s SFSP application had been denied by letter dated May 7, 1992, (3) ACCCI had been informed of its right to appeal the May 7 denial which it did not do, and (4) ACCCI had been notified that federal regulation, particularly 7 CFR 226.6(c), required ACCCI’s termination in the 1991-92 CACFP program because of the “serious deficiency” found in ACCCI’s SFSP application.2 ACCCI appealed to circuit court the hearing officer’s August 25,1992 decision upholding the agency’s denial of ACCCI’s participation in CACFP’s 1991-92 program. The circuit court agreed ACCCI had been notified of its rights to appeal the May 7 SFSP termination. However, the court concluded that SPN unlawfully terminated ACCCI before ACCCI had an opportunity to submit corrected information. The court was wrong. By its own finding, the circuit court determined ACCCI had been notified of SPN’s May 7, 1992 denial of ACCCI’s SFSP application, and the reasons for the denial. The court also found ACCCI had been sufficiently informed as to its right to appeal. As previously mentioned, ACCCI was provided fifty days, not just the fifteen days under 7 CFR § 226.6(c) within which to appeal, to explain or correct the false information made a part of its SFSP application; nonetheless, it failed either to appeal or correct the information. Clearly, ACCCI was given a reasonable opportunity to correct its problems before it was officially terminated for being seriously deficient. See 7 CFR 226.6(c). If ACCCI had appealed the SFSP denial, it could have continued, under appeal procedures, to participate in the lunch program while the appeal process was pending. Because ACCCI did not appeal, the doctrine of res judicata, which forbids reopening of matters once judicially determined by competent authority, applied to the agency’s decision. See Mohawk Tire & Rubber Co. v. Brider, 259 Ark. 728, 536 S.W.2d 126 (1976); Given v. R. D. Hall Tank Co., 10 Ark. App. 12, 660 S.W.2d 947 (1983). In other words, SPN’s finding of “serious deficiency” and its factual underpinnings became conclusive when ACCCI failed to appeal the May 7, 1992 denial. Even though ACCCI could have been precluded by law from explaining the falsehoods or “serious deficiencies” contained in its SFSP application at the August 7, 1992 hearing on its CACFP denial, ACCCI still was afforded that opportunity by the administrative hearing officer when that officer permitted ACCCI’s executive director to testify. The executive director thoroughly related why false information was provided. After that hearing, the hearing officer found the information on ACCCI’s SFSP application was false and unverified, and further found the executive director had listed food service sites in ACCCI’s application which she admitted ACCCI had not visited. In sum, ACCCI had every opportunity to explain why its SFSP application was submitted with false information, and if failed to give a valid or convincing explanation. Certainly, the record reflects the agency decision was not arbitrary or capricious in holding against ACCCI as it did. Arkansas Bank & Trust Co. v. Douglass, 318 Ark. 457, 885 S.W.2d 863 (1994); Douglass v. Dynamic Enter., Inc., 315 Ark. 575, 869 S.W.2d 14 (1994). As another reason for reversing the hearing officer’s decision, the circuit court held that false information submitted in an application in one food service program cannot be construed as a “serious deficiency” which disqualifies an institution in another program. Again, the trial court was in error. Under 7 CFR § 226.6(c),3 the state agency (SPN) shall terminate the program agreement with any institution which it determines to be seriously deficient. The state agency must then notify the Federal Food and Nutrition Service (FNS) that the state denied an institution’s application or participation in a program and that seriously deficient institution is placed on a list of ineligible institutions. A state agency shall not enter into an agreement with an ineligible institution and shall terminate any participating institution on that list. “Serious deficiencies” under 7 CFR § 226.6(c) is defined to include, but is not limited to, (1) noncompliance with applicable bid procedures and contract requirements of federal child nutrition program regulations and (2) the submission of false information to the state agency. In the present case, ACCCI’s misrepresentations or falsehoods constituted disqualifying “serious deficiencies” under federal law. Again, although given ample opportunity, ACCCI never sufficiently explained or corrected those deficiencies. Consequently, it became an ineligible institution which could not participate in any federal child nutrition program — at least until FNS and the state agency determine otherwise. 7 CFR § 226.6(c). For the reasons above, we reverse the circuit court and reinstate the agency’s decision. Corbin and Brown, JJ., dissent. Footnotes [1] Under 7 CFR § 225.6(b)(l I), the state agency shall not approve the application of any applicant sponsor which submits fraudulent information or documentation. [2] By letter dated October 12, 1992, SPN aNo denied ACCCI’s CACFP application for fiscal year 1992-93, citing the May 7, 1992 denial as the reason. We need not address ACCCI’s appeal to circuit court of the 1992-93 denial, since ACCCI did not first exhaust its administrative remedies. Even if ACCCI had exhausted its administrative remedies, SPN’s denial of ACCCI’s 1992-93 CACFP application would be upheld for the same reasons we uphold SPN’s denial of its 1991-92 CACFP contract. [3] Comparable provisions for the SFSP lunch program are found in 7 CFR § 225.1 et seq.