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KC Equities v. Department of Public Welfare

Commonwealth Court of Pennsylvania

April 14, 2014

KC Equities d/b/a Little Steps Day Care, Petitioner
Department of Public Welfare, Respondent

Argued March 10, 2014

Publication Ordered June 30, 2014.

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Appealed from No. 18-10-0030. State Agency: Department of Public Welfare.

George A. Michak, Lemoyne, for petitioner.

Megan A. Wiest, Assistant Counsel, Wilkes-Barre, for respondent.



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KC Equities d/b/a Little Steps Day Care (Little Steps) petitions for review from an adjudication of the Pennsylvania Department of Public Welfare (DPW), Bureau of Hearings and Appeals (BHA). The adjudication upheld DPW's Office of Child Development and Early Learning's (OCDEL) decision to revoke Little Steps' certificate of compliance to operate a day care center (Certificate), and to refuse to grant a provisional certificate of compliance. OCDEL based its decision on violations discovered during two inspections.

Significantly, months before OCDEL conducted these inspections, DPW and Little Steps entered into a settlement agreement (Settlement). Under the Settlement, DPW retained the right to revoke the Certificate for any regulatory or statutory violations. Also under the Settlement, DPW retained the right to refuse to issue a provisional certificate if there was an unsatisfactory inspection.

Little Steps disputes BHA's adjudication on multiple grounds, both procedural and substantive. Primarily, it contends there were insufficient grounds to revoke its Certificate, and the revocation lacked proper authorization. Little Steps also asserts it was not bound by the Settlement because DPW did not abide by its terms. Finding no merit in Little Steps' challenges, we uphold DPW's revocation and denial of a provisional certificate.

I. Background

Little Steps operates a certified child day care center in Wilkes-Barre. As a

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child day care center,[1] Little Steps is subject to the requirements in Article X of the Public Welfare Code (Code), 62 P.S. § § 1001-1080, and 55 Pa. Code Chapters 20 and 3270.

In 2008, DPW advised Little Steps that it decided not to renew the Certificate as a result of deficiencies in staff-child ratio and child supervision. Little Steps litigated the non-renewal through the administrative process, unsuccessfully. After BHA adopted an administrative law judge's recommendation and denied its appeal, but before the time for seeking reconsideration lapsed, Little Steps and DPW reached a resolution.

Little Steps and DPW executed the Settlement in February 2010. Little Steps agreed to the Settlement, and additional supervision and potential sanctions thereunder. The Settlement was to remain in effect for two years.

The parties agreed that any violation of the terms of the Settlement or any applicable requirement shall be deemed a material breach, and may form the basis for revocation or refusal to renew Little Steps' Certificate. Importantly, the Settlement mandated Little Steps to perform certain remedial measures within 60 days of the effective date of the agreement. These included: (1) preparing written policies regarding staff-child ratio, measurement and use of indoor child care space, and supervision of children; and, (2) requiring all staff members to pledge comprehension and compliance with the polices in a signed employee statement maintained in their personnel files. Pursuant to the Settlement, these policies and the employee statement were subject to DPW's approval.

In accordance with the Settlement, DPW agreed to issue Little Steps a provisional certificate of compliance provided that DPW was satisfied that Little Steps was in compliance with DPW regulations.[2] Specifically, the Settlement provides, with emphasis added:

After an on-site physical inspection of the facility is conducted, the results of which are satisfactory to the Department, the Department will issue [Little Steps] a first provisional certificate to operate a child day care center ... for a period of six (6) months. The on-site physical inspection will be conducted within four weeks of the execution date of the agreement and will be an announced inspection.

Reproduced Record (R.R.) at 23a (Settlement).

OCDEL inspected Little Steps on two separate occasions after the Settlement: March 5, 2010 (March Inspection); and April 24, 2010 (April Inspection). OCDEL undertook the March Inspection within the four weeks prescribed by paragraph 3 of the Settlement, after providing notice to Little Steps. OCDEL undertook the April Inspection in response to a complaint it received. Therefore, the April Inspection was unannounced.

During both inspections, OCDEL noted violations of the Settlement, the Code, and DPW regulations. The investigators recorded their findings in two separate Licensing Inspection Summaries (LIS).

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During the March Inspection, DPW certification representative Kristin Moran (Moran) of OCDEL noted the following six deficiencies:

(1) Peeling paint on one wall in the toddler room;
(2) Mats used by children for napping were not labeled with their names;
(3) Lack of a thermometer in the refrigerator in the infant room;
(4) A child's record did not contain a signed parental consent for emergency medical care;
(5) Same record lacked a signed parental consent for first aid; and
(6) Same record lacked health insurance information or policy number. R.R. at 46a-48a (March LIS).[3]

Between March and April 2010, Moran attempted to refer a request for training of Little Steps' staff to Community Services for Children, Inc. (CSC), a third-party provider of training services. CSC did not receive the initial referral, as it was not directed to the proper contact at CSC, Diane Milia (Milia). Moran made the proper referral for training to Milia on or about April 9, 2010. The training referral was necessary for Little Steps to meet one of its obligations under the Settlement (staff to receive additional training regarding child supervision).

Little Steps timely submitted a plan of correction as to the deficiencies noted in the March Inspection (March POC) by April 11, 2010.

While reviewing the March POC, Moran received a complaint about the staff-child ratios at Little Steps. According to the complaint, Little Steps had insufficient staff on weekends, and on a Saturday in April it had only one staff person to oversee 10 or more children.

As a result of that complaint, Moran conducted the unannounced April Inspection. During that inspection, she noted the following deficiencies:

(1) Violations of staff-child ratio, with two staff persons overseeing a group of 17 children, including 2 infants;
(2) Staff persons were not assigned specific groups of children;
(3) The 17 children were supervised in a room with a maximum capacity of 15 children; and
(4) Insufficient space for napping.

R.R. at 49a-52a (April LIS).[4]

Little Steps timely submitted a plan of correction to address these violations in May 2010 (April POC).

Based on the LIS from each inspection, and the referral of the inspectors, DPW never issued a provisional certificate of compliance.

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By letter dated June 4, 2010, signed by then-Acting Deputy Secretary Todd Klunk, DPW advised that, " after investigation, [DPW] has made a preliminary decision to REFUSE TO ISSUE a provisional certificate of compliance and REVOKES your regular certificate of compliance to operate a child care center ...." R.R. at 17a-20a (Revocation Letter). The Revocation Letter noted that Little Steps committed material violations of the Settlement by failing to comply with DPW regulations. The Revocation Letter further stated DPW " was particularly concerned with your repeated non-compliance with [DPW] regulations regarding staff-child ratios; measurement and use of indoor child care space[; ] and[,] for the supervision of children." R.R. at 17a (internal citations omitted).

Little Steps appealed the negative sanctions imposed under the Revocation Letter, which was assigned to Administrative Law Judge David A. Dudley, Esquire (ALJ).

Prior to the hearing, Little Steps served discovery requests on DPW, and sought a number of records and witness subpoenas. DPW did not respond to the discovery and opposed issuance of the subpoenas. BHA issued an order denying a motion to compel the discovery, and issued subpoenas, for testimony, for two of the seven witnesses requested.

At the hearing held by the ALJ, for Little Steps, the two principals testified, and for DPW, Moran, and Terry Shaner Wade, the Regional Director of the Northeast Regional Office (Wade) testified. The ALJ recommended denial of Little Steps' appeal. R.R. at 16a.

BHA accepted the ALJ's recommendation and denied Little Steps' appeal.

Little Steps filed a petition for review,[5] requesting that this Court reverse and vacate the adjudication. Little Steps also filed an application to stay the challenged adjudication, which was granted after oral argument.[6]

II. Issues

Little Steps challenges the validity of the revocation and the administrative proceedings as failing to comport with due process. Primarily, Little Steps disputes the propriety of the revocation.

First, it asserts the Acting Deputy Secretary lacked signatory authority and firsthand knowledge to authorize revocation. The process for referring providers for sanctions is flawed because it relies on the observations of inspectors, whose recommendations are adopted by executives with decision-making authority. Second, Little Steps argues its regulatory violations do not warrant revocation or denial of a provisional license, and such negative sanctions do not comport with the Code. Next, Little Steps asserts BHA's decisions to deny discovery and issuance of certain ...

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