WOODS SERVICES v. Dept. of Public Welfare

• Decision Date: 17 July 2002
• Citation: 803 A.2d 260
• Parties: WOODS SERVICES, INC., Petitioner, v. DEPARTMENT OF PUBLIC WELFARE, Respondent.
• Court: Pennsylvania Commonwealth Court

803 A.2d 260

WOODS SERVICES, INC., Petitioner, v. DEPARTMENT OF PUBLIC WELFARE, Respondent.

Commonwealth Court of Pennsylvania.

Argued June 12, 2002.

Decided July 17, 2002.

Thomas E. Coval, Willow Grove, for petitioner.

Daniel Fellin, Harrisburg, for respondent.

BEFORE: McGINLEY, J., SIMPSON, J., and MIRARCHI, JR., Senior Judge.

OPINION BY Judge SIMPSON.

Woods Services, Inc. (Woods) petitions for review of the order of the Secretary of the Department of Public Welfare (Secretary) that reversed the decision of the Bureau of Hearings and Appeals (BHA) and denied Woods' applications for licenses (Licenses) to operate two intermediate care facilities for the mentally retarded (ICF/MR) on the same property. We reverse.

Woods is a non-profit organization located in Langhorne, Pennsylvania, which provides educational and residential services to certain mentally retarded individuals at a campus-based facility. Woods is licensed by the Department of Public Welfare (DPW) pursuant to the regulations governing operation of community homes for individuals with mental retardation. 55 Pa. Code §§ 6400.1-6400.275.

In 1992, Woods applied to the Pennsylvania Department of Health (DOH) for a certificate of need (CON) for a proposed 102 bed ICF/MR.¹ DOH issued the CON. DPW's Office of Mental Retardation endorsed the CON, but restricted Woods to serving residents of New York, New Jersey and Maryland. By endorsing the CON, DPW certified that there was a need for the proposed ICF/MR.

Thereafter, Woods applied to DPW for the necessary Licenses to operate two ICF/MR facilities on their campus to serve out-of-state residents. DPW, however, declined to act on Woods' applications stating "the Department has decided not to act on these applications since no benefit to the citizens of the Commonwealth would result from such action." (Reproduced Record) R.R. 5a.

In 1995, Woods filed a complaint in equity and mandamus with this Court seeking an order directing DPW to consider its applications. On August 1, 1996, this Court issued an opinion and order directing DPW to consider the applications and issue a decision within 60 days. Woods Services v. Dep't of Public Welfare, 681 A.2d 238 (Pa.Cmwlth.1996).

Pursuant to that order, Nancy Thaler, DPW's Deputy Secretary for Mental Retardation, visited the facilities in person to conduct an assessment. Within days, Thaler sent a letter denying the applications. Thaler based the denial on the grounds that state and federal law require integration of persons with disabilities and favor small homelike residences over large institutional facilities.²

Woods appealed to the BHA. Several hearings were held before hearing officer Karen Burdell Castelli, Esquire. Expert testimony revealed that the mentally retarded individuals Woods seeks to serve also suffer from severe physical maladies. These individuals require an intensive care regimen that greatly limits their mobility. Further, Woods' medical director explained that the individuals are a "medically fragile population" with severe problems that are not commonly seen in the "ordinary population." R.R. 65a. The physical disabilities include severe hydrocephalus with shunting, spinal cord injuries, hypopituitarism and complex brain malformations.

Following the hearings, the hearing officer issued a thorough and thoughtful opinion concluding that Woods was entitled to the Licenses. The basis of her opinion was that DPW's stated preference for smaller, integrated facilities was not based upon existing regulations or published policy. In her opinion, the hearing officer made the following significant findings of fact:

23. On September 19, 1996, Ms. Thaler sent Robert Griffith, President of Woods, correspondence denying the application for (a) license(s) to operate the facilities because "state and federal law require integration of persons with disabilities—and hence favor small, homelike residences over large institutional ones, ..." In addition, "large or campus based facilities are presumptively unsuitable for new residential licenses." The "... Department, therefore, is precluded by § 1007 of the Public Welfare Code, 62 P.S. § 1007, from licensing large, new residential facilities irrespective of the degree of compliance with applicable regulations" (emphasis added.)

24. Other than referring to the size of the proposed facilities, the Department's denial notification included no claims that the proposed facilities were unsuitable for other reasons.

25. The parties stipulated that the license denial is not based on any criteria in 62 P.S. § 1026(b)(2), (3), (4) or (5), but is based on (b)(1), which requires denial for "violation of or non-compliance with the provisions of this act or of regulations pursuant thereto."

26. DPW has adopted the federal ICFMR regulations in their entirety and had not added to them at the times pertinent to this case.

27. The federal regulations address "suitability" only as it relates to suitability of the program for an individual and suitability of individuals for placement in an ICFMR facility.

28. This so-called "policy" of a preference for small units and against larger ones had never been officially promulgated or publicized at any time pertinent to this case.

The director of the BHA subsequently issued an order adopting, in its entirety, the hearing officer's opinion.

Thereafter, DPW filed a motion for reconsideration of the BHA's order with the Secretary. The Secretary granted the motion. Ultimately, the Secretary issued a final order setting aside the BHA's order. The Secretary's order did not set forth findings of fact, nor did it specifically reject any facts found by the hearing officer and adopted by the BHA. In its order, the Secretary stated that the BHA erred by failing to recognize the broad discretion held by licensing authorities in interpreting and applying licensing law. Further, in determining that Woods is unsuitable to operate an ICF/MR, the Secretary concluded DPW did not abuse its discretion. Woods filed a timely appeal challenging the Secretary's order.

On appeal, Woods contends that its proposed ICF/MR satisfies all published licensing standards. Woods further maintains that the Secretary erred by relying on unpublished policy in determining that the proposed ICF/MR is not "suitable." We agree.

Our review of a final order of DPW is limited to determining whether an error of law was committed, whether constitutional rights were violated or whether necessary findings of fact are supported by substantial evidence. Britt v. Dep't of Public Welfare, 787 A.2d 457 (Pa.Cmwlth. 2001). Where, as here, the Secretary does not reverse any facts found by the hearing officer, these findings, if supported by substantial evidence, are binding on this Court. Cf. Boss Insulation & Roofing, Inc. v. Dep't of Labor and Industry, 722 A.2d 778 (Pa.Cmwlth.1999)

(since the Secretary did not reverse credibility findings made by the hearing officer they are binding on this Court).

As to the substantive issue, we must determine whether the Secretary committed an error of law by denying Woods' applications based on an unpublished policy favoring small, integrated facilities. We conclude that she did.

In her order, the Secretary cites Batoff v. State Bd. of Psychology, 561 Pa. 419, 750 A.2d 835 (2000) and Ferguson v. State Bd. of Funeral Directors, 768 A.2d 393 (Pa.Cmwlth.2001) as authority for the position that the BHA failed to recognize the broad discretion held by licensing authorities to interpret and apply licensing law.³ These cases, however, involve disciplinary measures imposed against professional occupational licensees. Moreover, these cases involve interpretation of existing and published statutory and regulatory provisions.

Here, unlike in Batoff and Ferguson, we are not reviewing an agency interpretation of professional occupational licensing law as it relates to a professional licensee. Rather, we are reviewing DPW's denial of a license to a facility it concedes is otherwise qualified merely because of the facility's failure to comply with unpublished policy. Simply put, the cases cited by the Secretary do not support the position that an agency may interpret a general term in a statute based upon unpublished regulations or policy. The Secretary erred when she relied on these cases to set aside the BHA's order.

The Secretary also relied on Second Breath v. Dep't of Public Welfare, 731 A.2d 674 (Pa.Cmwlth.1999) for the proposition that DPW's determination that the proposed ICF/MR is "unsuitable" was not an abuse of discretion. This case is also distinguishable. In Second Breath, the facility requested that DPW waive a published regulation requiring that its CEO possess a college degree. DPW denied the request. On appeal, we upheld the denial because applicable regulations plainly required that Second Breath's CEO have a college degree. We concluded that DPW's decision not to waive its clearly written and reasonable requirement that the proposed CEO have a college degree did not amount to an abuse of discretion.

Unlike in Second Breath, here there are no "clearly written" regulations justifying denial of the Licenses. DPW's preference for small facilities over larger ones was never officially promulgated or published at any time pertinent to this case. In an attempt to evade the lack of applicable regulations, DPW asserts that the proposed facilities are unsuitable for the purpose they seek to fulfill. The Secretary erred when she relied upon Second Breath to support setting aside the BHA's order.

Section 1007 of the Public Welfare Code,⁴ (Code) requires DPW to issue licenses when certain conditions are met. That Section provides:

When, after investigation, the department is satisfied that the applicant or applicants for a license are responsible persons, that the place to be used as a facility is suitable for the purpose, is appropriately equipped and that the applicant or applicants

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