Lisa Lincoln v. North Carolina Dept. of Hhs

• Decision Date: 16 August 2005
• Docket Number: No. COA04-1194.,COA04-1194.
• Parties: LISA LINCOLN & HONEYBEES CREATIVE CENTER, Petitioner, v. NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, NUTRITION BRANCH, Respondent.
• Court: North Carolina Supreme Court

616 S.E.2d 622

LISA LINCOLN & HONEYBEES CREATIVE CENTER, Petitioner, v. NORTH CAROLINA DEPARTMENT OF HEALTH AND HUMAN SERVICES, NUTRITION BRANCH, Respondent.

No. COA04-1194.

Court of Appeals of North Carolina.

August 16, 2005.

Appeal by petitioner from order entered 10 May 2004 by Judge Orlando F. Hudson in Wake County Superior Court. Heard in the Court of Appeals 20 April 2005.

Attorney General Roy Cooper by Assistant Attorney General Elizabeth L. Oxley, for respondent-appellee.

Allen and Pinnix, P.A., by M. Jackson Nichols and Angela Long Carter, Raleigh, for petitioner-appellant.

ELMORE, Judge.

Lisa Lincoln and her childcare company Honeybees Creative Center (petitioners), appeal from the dismissal of a contested case brought against the Nutrition Division of North Carolina Health and Human Services (respondent) for its determination that petitioners have not complied with federal law regarding reimbursement for low cost school meals.

Respondent is charged with administering the Child and Adult Care Food Program, financed by the United States Department of Agriculture. In order to receive reimbursement money from respondent, petitioners must comply with all the federal requirements for funds. Respondent audited petitioners' records for the program and found that they were in noncompliance; many required records were missing and others did not coincide. As a result, respondent demanded repayment of $60,279.45, representing the amount respondent had paid out to petitioners during the period of noncompliance.

On 24 June 2003, petitioners filed for a contested case hearing to dispute the money owed. This was after petitioners had received a letter from one of respondent's employees informing them that an informal process of resolution might be available. Petitioners served notice of the filing on the author of the letter; however, this individual was not respondent's listed agent for service of process.

On 25 June 2003, the parties received notice that the Office of Administrative Hearings (OAH) had assigned Judge Augustus B. Elkins (the ALJ) to hear the contested case. The notice also made reference to a possible forthcoming order for prehearing statements. In accordance with N.C. Admin. Code tit. 26, r. 3.0104 (June 2004), and on the same day, the ALJ filed an order giving both parties thirty days to file and serve prehearing statements. Respondent complied with the order, submitting its pretrial statement and other required documentation supporting its claim.

Petitioners failed to respond within thirty days, and in fact filed nothing more after the petition for the contested case hearing. On 20 October 2003, respondent filed a motion to dismiss the contested case for petitioners' failure to respond to a court order and failure to properly effect service of process. The ALJ sent petitioners notice of his order giving them ten days to file objections to the motion to dismiss. No response was received. The contested case was scheduled for hearing on 3 November 2003. On 22 October 2003, respondent filed a request to continue the hearing along with a request for the ALJ to hear its motion to dismiss. The next day the ALJ sent notification that he had continued the case and a new hearing date would be set. On 13 November 2003, the ALJ granted respondent's motion to dismiss, citing the facts that petitioners had failed to prosecute their case, other sanctions had been considered, and dismissal was appropriate.

On 15 December 2003, nearly six months after their initial filing, petitioners filed a petition for judicial review in Wake County Superior Court, requesting review of the final decision of the ALJ dismissing the case. Petitioners took exception to findings 2 and "3" (actually numbered 4 in the ALJ's order) and argued that the order violated all six grounds listed in N.C. Gen.Stat. § 150B-51(b). On 10 May 2004, after reviewing the whole record, the trial court entered its order affirming the findings and conclusions of the ALJ and also determining that the ALJ's decision was not arbitrary or capricious. Petitioners filed notice of appeal to this Court.

Neither party has briefed the appropriate standard of review this Court should apply when reviewing an order of the superior court, sitting in appellate capacity, that reviewed a final decision of an administrative law judge issued pursuant to N.C. Gen.Stat. § 150B-36(c) (2003). Since we are reviewing a "review proceeding" in the superior court and petitioners are appealing pursuant to N.C. Gen.Stat. § 7A-27, we will apply N.C. Gen.Stat. § 150B-52 (2003):

A party to a review proceeding in a superior court may appeal to the appellate division from the final judgment of the superior court as provided in G.S. 7A-27. The scope of review to be applied by the appellate court under this section is the same as it is for other civil cases.

Id. See also N.C. Dep't of Env't & Natural Res. v. Carroll, 358 N.C. 649, 658, 664, 599 S.E.2d 888, 894, 898 (2004) (stating section 150B-52 is applicable to appellate review of a superior court decision). Recently, our Court has previously characterized the standard of review called for by this statute in at least two ways. In Diaz v. Division of Soc. Servs., the Court described the review contemplated by section 150B-52 as:

whether there was competent evidence to support the trial court's findings of fact and whether its conclusions of law were proper in light of such facts. Findings of fact by the trial court in a non-jury trial . . . are conclusive on appeal if there is evidence to support those findings. A trial court's conclusions of law, however, are reviewable de novo.

166 N.C.App. 209, 211, 600 S.E.2d 877, 879 (2004) (quoting Shear v. Stevens Building Co., 107 N.C.App. 154, 160, 418 S.E.2d 841, 845 (1992)), Medina v. Division of Social Servs., 165 N.C.App. 502, 505, 598 S.E.2d 707, 709 (2004). Yet, in Hardee v. N.C. Bd. of Chiropractic Exam'rs, 164 N.C.App. 628, 633, 596 S.E.2d 324, 328, disc. review denied, 359 N.C. 67, 604 S.E.2d 312 (2004), we characterized the operable standard of review under this statute slightly differently, noting that it involved a twofold determination: "(1) determining whether the trial court exercised the appropriate scope of review and, if appropriate, (2) deciding whether the court did so properly." Id. (citing Eury v. N.C. Employment Security Comm., 115 N.C.App. 590, 597, 446 S.E.2d 383, 387-88 (1994)).

Our appellate court's principal cases discussing the standard of review have dealt with review of a final agency or board decision that the superior court reviewed, see Carroll, 358 N.C. at 652, 599 S.E.2d at 890; Mann Media, Inc. v. Randolph Cty. Planning Bd., 356 N.C. 1, 565 S.E.2d 9 (2002); Capital Outdoor, Inc. v. Guilford Cty. Bd. of Adjust., 355 N.C. 269, 559 S.E.2d 547 (2002) (per curiam) (adopting the dissent in 146 N.C.App. 388, 392, 552 S.E.2d 265, 268 (2001)); ACT-UP Triangle v. Commission for Health Services, 345 N.C. 699, 483 S.E.2d 388, (1997); Shackleford-Moten v. Lenoir Cty. DSS, 155 N.C.App. 568, 573 S.E.2d 767 (2002); Amanini v. N.C. Dept. of Human Resources, 114 N.C.App. 668, 443 S.E.2d 114 (1994), not the review of a final decision of an ALJ issued pursuant to N.C. Gen.Stat. § 150B-36(c) that has no agency or board action.¹

Nonetheless, consistent with this case law, when reviewing an order from a superior court acting in an appellate capacity, our scope of review is restricted to evaluating the trial court's order for errors of law. Shackleford-Moten, 155 N.C.App. at 572, 573 S.E.2d at 770 (citing ACT-UP Triangle, 345 N.C. at 706, 483 S.E.2d at 392). "[A]n appellate court's obligation to review for errors of law, see N.C.G.S. §§ 7A-27(b), 150B-52, N.C.R.App. P. 16(a), `can be accomplished by addressing the dispositive issue(s) before the agency and the superior court' and determining how the trial court should have decided the case upon application of the appropriate standards of review." Carroll, 358 N.C. at 664-65, 599 S.E.2d at 898 (quoting Capital Outdoor, Inc. v. Guilford Cty. Bd. of Adjust., 146 N.C.App. 388, 392, 552 S.E.2d 265, 268 (2001) (Greene, J., dissenting)). Although these cases deal with our standard of review of contested cases reaching a final agency decision, we find it authoritative for cases arising from section 150B-36(c) as well. Further, although the superior court's scope of review regarding an ALJ's final decision issued pursuant to section 150B-36(c) does not fall precisely within the plain language of any provision of N.C. Gen.Stat. § 150B-51, we determine, as the superior court did here, that the standard of review is that stated in section 150B-51(b).

Here, the dispositive issue on review to the superior court and on appeal to this Court is whether the ALJ erred in dismissing petitioners' contested case pursuant to section 150B-36(c)(3) for failure to prosecute. This issue requires both a factual inquiry as well as a legal inquiry; to that extent we will review the ALJ's findings of fact under the whole record test and its conclusions of law de novo in order to determine if the superior court erred. See Carroll, 358 N.C. at 659, 599 S.E.2d at 894-95. We hold that the superior court should have affirmed the ALJ's order under section 150B-51(b) and thus find no errors of law in the superior court actually doing so.

The ALJ found that, after filing a petition for a contested case on 24 June 2003, petitioners filed nothing until 15 December 2003 despite receiving several orders from the ALJ to file and serve prehearing statements and other responses to motions. The ALJ further found that:

2. Petitioner, by failure to respond through a Prehearing Statement or respond to Respondent's motion, despite orders by the [ALJ], has appeared . . . to have abandoned interest in this contested case. By Petitioner's failure to set forth its version of the facts and other items as required by the Prehearing Statement or respond to Respo...