Cedarbrook Residential Ctr. v. N. Carolina Dep't of Health & Human Servs.

• Decision Date: 16 December 2022
• Docket Number: 36A22
• Parties: CEDARBROOK RESIDENTIAL CENTER, INC. and FRED LEONARD v. NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, ADULT CARE LICENSURE SECTION
• Court: North Carolina Supreme Court

2022-NCSC-120

CEDARBROOK RESIDENTIAL CENTER, INC. and FRED LEONARD
v.
NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, DIVISION OF HEALTH SERVICE REGULATION, ADULT CARE LICENSURE SECTION

No. 36A22

Supreme Court of North Carolina

December 16, 2022

Heard in the Supreme Court on 4 October 2022.

Appeal pursuant to N.C. G.S. § 7A-30(2) from the decision of a divided panel of the Court of Appeals, 281 N.C.App. 9, 2021-NCCOA-689, affirming an order entered on 6 November 2020 by the North Carolina Industrial Commission denying defendant's motion to dismiss pursuant to Rules 12(b)(1), 12(b)(2), and 12(b)(6) of the North Carolina Rules of Civil Procedure. Heard in the Supreme Court on 4 October 2022 in the Historic 1767 Chowan County Courthouse in the Town of Edenton pursuant to N.C. G.S. § 7A-10(a).

Brooks, Pierce, McLendon, Humphrey &Leonard, L.L.P., by Joseph A. Ponzi and Howard L. Williams, for plaintiff-appellees.

Robinson, Bradshaw &Hinson, P.A., by Adam K. Doerr and Demi Lorant Bostian; and Joshua H. Stein, Attorney General, by Amar Majmundar, Special Deputy Attorney General, for defendant-appellant.

Disability Rights North Carolina by Lisa Grafstein and Kristine Sullivan, for Disability Rights North Carolina, Friends of Residents in Long Term Care, AARP, and AARP Foundation, amici curiae.

Smith, Anderson, Blount, Dorsett, Mitchell &Jernigan, LLP, by John E. Harris and James C. Wrenn, Jr., for North Carolina Senior Living Association and North Carolina Assisted Living Association, amici curiae.

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ERVIN, JUSTICE

¶ 1 This case arises from a dispute between plaintiffs Cedarbrook Residential Center, Inc., an adult care home, and its owner, Fred Leonard, on the one hand, and defendant North Carolina Department of Health and Human Services, on the other hand, arising from certain regulatory actions taken by the department in response to deficiencies that the employees of the department's Adult Care Licensure Section had identified during inspections of plaintiffs' facility. After plaintiffs contested the department's actions by initiating a contested case before the Office of Administrative Hearings, the parties reached a settlement pursuant to which the department agreed to withdraw its allegations in exchange for plaintiffs' agreement to take certain remedial steps that were intended to address the alleged deficiencies. Subsequently, plaintiffs filed a claim with the Industrial Commission pursuant to the North Carolina State Tort Claims Act in which they alleged that departmental employees had been negligent in the course of inspecting and exercising regulatory authority over plaintiffs' facility and sought to recover damages arising from increased operating expenses, decreased revenue, and lost profits from a planned sale of the facility that, in plaintiffs' view, had been proximately caused by the department's negligence. Although the department sought dismissal of plaintiffs' claims on the grounds that they were barred by the doctrine of sovereign immunity, that the claims

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that plaintiffs sought to assert against the department were not cognizable under the State Tort Claims Act, that plaintiffs had failed to plead a valid negligence claim against the department, and that plaintiffs' claims were foreclosed by the public duty doctrine, the Commission denied the department's dismissal motion, a decision that a divided panel of the Court of Appeals affirmed. Cedarbrook Residential Ctr., Inc. v. N.C. Dep't of Health &Hum. Servs., 281 N.C.App. 9, 2021-NCCOA-689. The department noted an appeal to this Court based upon a dissenting opinion at the Court of Appeals. After careful consideration of the parties' arguments in light of the record and the applicable law, we reverse the decision of the Court of Appeals and remand this case to that court for further remand to the Commission for additional proceedings not inconsistent with this opinion.

I. Factual Background A. Substantive Facts

¶ 2 Cedarbrook is an adult care home located in Nebo that is owned and operated by Mr. Leonard. Cedarbrook "provid[es] a place of residence for disabled adults, including those with historic mental illness who are primarily stable in their recovery, though occasionally volatile," and who "are a challenging population with a distinct culture, for whom few housing options exist in North Carolina." As an adult

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care home,^[1] Cedarbrook is subject to oversight by the department's Adult Care Licensure Section pursuant to Chapter 131D of the North Carolina General Statutes, N.C. G.S. § 131D-1 et seq. (2021), which provides a comprehensive regulatory framework governing adult care homes that is intended to "ensure that adult care homes provide services that assist the residents in such a way as to assure quality of life and maximum flexibility in meeting individual needs and preserving individual autonomy," N.C. G.S. § 131D-4.1.

¶ 3 The General Assembly has delegated numerous regulatory powers to the department, including the authority to license and inspect adult care homes, N.C. G.S. § 131D-2.4, and to adopt rules relating to the monitoring and supervision of residents, the quality of care provided to residents, and the staffing levels provided at such facilities, N.C. G.S. § 131D-4.3. In addition, the department is required to assess administrative penalties against any adult care home that is found to be in violation of applicable state and federal laws and regulations, including any provision of the "Adult Care Home Residents' Bill of Rights," N.C. G.S. § 131D-34, codified as Article 3 of Chapter 131D, N.C. G.S. § 131D-19 et seq., which embodies the General

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Assembly's desire "to promote the interests and well-being of residents in adult care homes and assisted living residences" so that "every resident's civil and religious liberties, including the right to independent personal decisions and knowledge of available choices, shall not be infringed" and so that "the facility shall encourage and assist the resident in the fullest possible exercise of those rights," N.C. G.S. § 131D-19. In support of this policy, the relevant statutory provisions set out an extensive "declaration of rights" that are available to residents of adult care homes, N.C. G.S. § 131D-21, and charges the department and local social services agencies with the responsibility for their enforcement, N.C. G.S. §131D-26.

¶ 4 In November 2015, the department conducted an inspection of Cedarbrook, during which it identified numerous concerns about the manner in which the facility was being operated, and reported those deficiencies to Cedarbrook in a "Statement of Deficiencies." As a result of these alleged deficiencies, the department suspended new admissions at Cedarbrook on 19 November 2015 and issued a notice of its intent to revoke Cedarbrook's license on 17 December 2015. After a follow-up inspection conducted in March 2016, the department issued another Statement of Deficiencies in which it concluded that Cedarbrook had "failed to submit acceptable plans of protection [for its residents] in compliance with [ N.C. G.S §] 131D-34(a)" despite the department's repeated requests that it do so. In these two Statements of Deficiencies,

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which totaled more than 400 pages, the department described the problems that it had identified at Cedarbrook, including, but not limited to,

i. Supervision and staffing issues, including a resident who went missing and was later found near I-40, around five miles away from Cedarbrook;

ii. Reports of residents performing sex acts for money or sodas from the Cedarbrook commissary;

iii. Admitting and failing to discharge residents exhibiting dangerous and aggressive behavior, including physical aggression and arson;

iv. Smoking inside the facility;

v. Hoarding behaviors creating a safety hazard;

vi. Failing to protect residents' privacy when administering medication; and

vii. Issues with maintenance of medical equipment, such as walkers and wheelchairs.

As a result of these two inspections, the department concluded that Cedarbrook had committed five Type A1 violations, one Type A2 violation, and eight Type B violations.^[2]

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¶ 5 Based upon these findings, on 18 March 2016, the department issued a "Directed Plan of Protection," which it believed to be necessary "to ensure the health, safety, and welfare of the residents." The Directed Plan of Protection required Cedarbrook to address the problems that had been identified in the Statements of Deficiencies by, among other things, increasing on-site staffing levels, assessing all residents who had been diagnosed with a mental illness or an intellectual developmental disability for the purpose of ensuring that they received appropriate care and supervision, providing additional staff training, and reviewing and, to the extent necessary, revising Cedarbrook's policies concerning the use and suspected use of illicit drugs and alcohol by Cedarbrook residents. On 16 May 2016, the department withdrew its notice of intent to revoke the facility's operating license and issued a provisional license based upon its determination, in accordance with N.C. G.S. § 131D-2.7, that there was a "reasonable probability" that Cedarbrook could remedy the deficiencies that the department had identified.

¶ 6 Cedarbrook disputed the department's regulatory findings and filed a petition with the Office of Administrative Hearings in which it formally challenged the validity of those findings and the lawfulness of the regulatory actions that the department had taken. On 6 July 2016, the Office of Administrative Hearings stayed

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the department's decision to suspend further admissions at Cedarbrook, a sanction that the department formally lifted on 12 August 2016. Prior to the holding of a formal contested case hearing before an administrative law judge, the parties reached a settlement pursuant to which the...