Kosmic Kidz Outreach, Inc., and Fredrick Jackson v. Arkansas Department of Human Services

2020 Ark. App. 572

• Court: Court of Appeals of Arkansas
• Decided: December 9, 2020
• Status: Published

Opinion

Cite as 2020 Ark. App. 572 Reason: I attest to the accuracy and integrity of this ARKANSAS COURT OF APPEALS document Date: 2021-08-23 13:33:50 Foxit PhantomPDF Version: DIVISION II 9.7.5 No. CV-18-978

Opinion Delivered: December 9, 2020

KOSMIC KIDZ OUTREACH, INC., AND FREDRICK JACKSON APPEAL FROM THE JEFFERSON APPELLANTS COUNTY CIRCUIT COURT [NO. 35CV-17-762] V. HONORABLE ROBERT H. WYATT, ARKANSAS DEPARTMENT OF JR., JUDGE HUMAN SERVICES APPELLEE AFFIRMED

WAYMOND M. BROWN, Judge

Appellants Kosmic Kidz Outreach, Inc., and its director, Fredrick Jackson, appeal the

October 10, 2018 order of the Jefferson County Circuit court denying their petition for

judicial review. Appellants contend that their substantial rights were prejudiced by the

agency’s decision to terminate them from CACFP participation. We affirm.

Kosmic Kidz participated in the Child and Adult Care Food Program (CACFP), a

federal program that provides reimbursements for nutritious meals and snacks to eligible

children and adults who are enrolled for care in participating centers. Following a

compliance review by the Arkansas Department of Human Services (DHS) in early 2016,

Kosmic Kidz was issued a “Notice of Serious Deficiency/Need for Corrective Action Plan”

and “Notice of Fiscal Action/Right to Appeal” on April 7, 2016. In the notice, Kosmic

Kidz was informed that as of February 26, it was seriously deficient in light of the findings of DHS’s compliance review. There was a total of fifteen seriously deficient findings made

against Kosmic Kidz. Appellant Jackson and Tyrone Williams, board president, were listed

as the individuals responsible for the serious deficiencies. The notice required Kosmic Kidz

to submit a written “Corrective Action Plan” (CAP) before May 2 addressing the serious

deficiencies cited in the notice. Kosmic Kidz was informed that failure to submit an

approved CAP may result in DHS’s proposing to immediately terminate Kosmic Kidz’s

agreement and to disqualify Kosmic Kidz and its principals from future CACFP

participation.

Kosmic Kidz submitted a CAP on May 2, addressing all fifteen findings from the

April notice. DHS issued a response to Kosmic Kidz’s CAP on November 23. In the

response, DHS accepted in part and denied in part Kosmic Kidz’s CAP. DHS informed

Kosmic Kidz that it had until December 30 to submit a CAP that fully and permanently

corrects all the operational deficiencies identified by DHS. Kosmic Kidz submitted its new

CAP on December 30.

On February 10, 2017, DHS issued a “Notice of Proposed Termination and

Disqualification.” In the notice, DHS stated that Kosmic Kidz had not fully and

permanently corrected the serious deficiencies found in the “Notice of Serious Deficiency”

(April 2016). Therefore, DHS proposed to terminate Kosmic Kidz’s agreement to

participate in the CACFP, disqualify Kosmic Kidz from future CACFP participation, and

to disqualify director Fredrick Jackson and president/chairman Tyrone Williams from future

CACFP participation. Kosmic Kidz was given a chance to submit a supplemental CAP on

2 March 1 after a hearing was continued for this purpose. The supplemental CAP was

submitted on March 15.

On June 7, DHS issued a “Notice of Proposed Termination and Disqualification

(Exclusion) Required Correction Action Not Acceptable” following its review of Kosmic

Kidz’s March 15 CAP. DHS found that Kosmic Kidz had failed to fully and permanently

correct all the deficiencies listed in the “Notice of Serious Deficiency.” It also included the

appeal procedure necessary for the affected parties.

An administrative hearing took place before the ALJ on August 29. During the

hearing, appellants tried to elicit testimony about a June 30, 2017 CAP it had submitted to

DHS but had not been acted on. This evidence was disallowed, and the evidence and

testimony were limited by the ALJ to things properly appealable—in this case, DHS’s notice

of proposed termination and disqualification.1 The ALJ issued a final order on September

11 finding that DHS had followed the proper procedures and regulations in reaching the

decision to terminate Kosmic Kidz’s agreement in the CACFP and in disqualifying Kosmic

Kidz, Jackson, and Williams from further participation in the CACFP by placing their names

on the “National Disqualification List.”

Appellants filed a petition for judicial review on October 10, and the administrative

record was filed with the court on November 14. The court entered an order on October

10, 2018, denying appellants’ petition. Specifically, the court found that there was sufficient

proof to support the ALJ’s findings; that the findings were not in violation of constitutional

1 A serious deficiency determination, a denial of CAP, and the determination of responsible principals are not appealable issues. 7 C.F.R. § 226.6(k)(3)(ii)–(iii).

3 or statutory provisions; that it was not in excess of the agency’s statutory authority; that it

was not made upon unlawful procedure; that it was not affected by other error or law; and

that it was not arbitrary, capricious, or characterized by an abuse of discretion. Appellants

filed a timely notice of appeal on November 8. This appeal follows.

Our review of the decisions of administrative agencies is limited in scope, specifically

to determine whether a decision is supported by substantial evidence and is not arbitrary,

capricious, or constitutes an abuse of discretion.2 The limited scope of judicial review is

premised on the recognition that administrative agencies are better equipped than courts by

specialization, insight through experience, and more flexible procedures to determine and

analyze legal issues affecting their agencies.3 Our appellate review is directed not to the

circuit court’s decision but rather to the decision of the administrative agency.4

An appellate court sitting in review of a finding of an administrative agency must

affirm the agency’s finding if the finding is supported by any substantial evidence. 5

Substantial evidence is such relevant evidence that a reasonable mind might accept as

adequate to support a conclusion, giving the evidence its strongest probative force in favor

of the administrative agency.6 The challenging party has the burden of proving an absence

2 Holloway v. State Bd. of Architects, 352 Ark. 427, 101 S.W.3d 805 (2003). 3 Ark. Bd. of Exam’rs in Counseling v. Carlson, 334 Ark. 614, 976 S.W.2d 934 (1998). 4 Ark. Dep’t of Human Servs. v. Bixler, 364 Ark. 292, 219 S.W.3d 125 (2005). 5 Ark. Code Ann. § 25-15-212(h) (Supp. 2019); Odyssey Healthcare Operating A. LP v. Ark. Dep’t of Human Servs., 2015 Ark. App. 459, 469 S.W.3d 381. 6 Odyssey Healthcare, supra.

4 of substantial evidence.7 To establish an absence of substantial evidence, the challenging

party must demonstrate that the proof before the administrative agency was so nearly

undisputed that fair-minded persons could not reach its conclusion.8

The requirement that the agency’s decision not be arbitrary or capricious is less

demanding than the requirement that it be supported by substantial evidence.9 To be invalid

as arbitrary or capricious, an agency’s decision must lack a rational basis or rely on a finding

of fact based on an erroneous view of the law.10 Where the agency’s decision is supported

by substantial evidence, it automatically follows that it cannot be classified as unreasonable

or arbitrary.11

We may reverse the agency decision if we conclude that the substantial rights of the

petitioner have been prejudiced because the administrative findings, inferences, conclusions,

or decisions are (1) in violation of constitutional or statutory provisions; (2) in excess of the

agency’s statutory authority; (3) made upon unlawful procedure; (4) affected by other error

or law; (5) not supported by substantial evidence of record; or (6) arbitrary, capricious, or

characterized by abuse of discretion.12

7 Id. 8 Id. 9 Id. 10 Id. 11 Id. 12 Id.

5 Appellants contend that their substantial rights were prejudiced by DHS’s decision

to terminate them from CACFP participation. More specifically, appellants contend that

the ALJ denied them the right to present testimony and cross-examine witnesses on issues

that were key to their case. Appellants name Vickie Steward as a person whom the ALJ

refused to allow testify. According to appellants, Steward’s testimony would go to whether

DHS followed its procedures in issuing the notice based on a finding of serious deficiency.

However, the colloquy before the court as abstracted and included in this argument does

not mention notice. Appellants’ attorney asked the ALJ, “[S]o [Steward] cannot testify as

to whether or not the agency followed proper corrective action plan and /or procedures?”

The ALJ responded that the “proper corrective action plan is not an issue” and that “it’s not

appealable.” The ALJ was correct in limiting the scope of the hearing to only notice as an

agency’s determination of serious deficiencies and denial of a CAP are not issues subject to

administrative review under 7 C.F.R. § 226.6(k)(3)(ii)–(iii). We have no way of knowing

if Steward’s testimony would have addressed DHS’s procedure in issuing the notice because

appellants failed to proffer that testimony. The failure to proffer evidence so that the

appellate court can determine whether prejudice resulted from its exclusion precludes

review of the evidence on appeal.13 As a result, appellants cannot demonstrate prejudice

from the court’s exclusion of Steward’s testimony.

Appellants contend they were prejudiced during the cross-examination of Thomas

Sheppard. During Sheppard’s testimony, appellants tried to elicit evidence concerning

Sheppard’s qualifications as he had just recently been named the assistant director prior to

13 Parkerson v. Brown, 2013 Ark. App. 718, 430 S.W.3d 864.

6 denying appellant’s March 15, 2017 CAP. Appellants wanted to question Sheppard’s

qualifications because his denial of appellants’ CAP included items that were previously

approved in November. However, as appellee successfully argued, that information was

outside the scope of the hearing. Just as above, appellants failed to proffer the evidence,

which precludes our review on appeal.

Appellants also argue that the exclusion of the above testimony denied them due

process. The Arkansas Supreme Court has held that a party appearing before an

administrative agency is entitled to due process in the proceedings. 14 Appellants, however,

did not raise this specific argument about the denial of the testimony before either the ALJ

or the circuit court. Therefore, it is not properly before us.15

Appellants also argue, as they did below, that they were denied due process because

DHS failed to follow its own procedures. The ALJ found that DHS identified fifteen serious

deficiencies of Kosmic Kidz in its April 7, 2016 notice. It further made independent findings

on each of the six steps of the “Serious Deficiency Process” and concluded that DHS

completed all the applicable steps in the process.16 Appellants maintained below that they

were not provided notice that Kosmic Kidz was seriously deficient. However, the ALJ

14 C.C.B. v. Ark. Dep’t of Health & Human Servs., 368 Ark. 540, 247 S.W.3d 870 (2007). 15 See Kohlman v. Ark. Dep’t of Human Servs., 2018 Ark. App. 164, 544 S.W.3d 595 (holding that because a due-process argument was not raised below, the issue was not preserved for appellate review). 16 The steps are as follows: (1) identify the serious deficiency, (2) notice of serious deficiency, (3) receive and assess the CAP, (4) issue notice of proposed termination and disqualification, (5) provide an appeal review, and (6) issue a notice of final disqualification.

7 found that DHS notified appellants that Kosmic Kidz was seriously deficient in the April 7,

2016 “Notice of Serious Deficiency.” Subsequent correspondences from DHS also put

appellants on notice that Kosmic Kidz’s deficiencies had not been fully and permanently

corrected.17 Thus, Kosmic Kidz’s argument that it was not notified that it was seriously

deficient is without merit. Substantial evidence supports DHS’s decision, and we affirm.

Affirmed.

KLAPPENBACH and HIXSON, JJ., agree.

Willard Proctor, Jr., P.A., by: Willard Proctor, Jr., for appellants.

Skye Martin, Office of Chief Counsel, Arkansas Department of Human Services, for

appellees.

17 There were two correspondences: a November 23, 2016, “Response to Corrective Action Plan” wherein the CAP was accepted in part and denied in part; and a February 10, 2017, “Notice of Proposed Termination and Disqualification” wherein it was noted that the serious deficiencies had not been fully and permanently corrected.