In re Partners in Nutrition

1

Partners in Nutrition d/b/a Partners in Quality Care Appeal of MDE Decision Child and Adult Care Food Program December 2021 Claims for Reimbursement (A22-0965), and and Re: Partners in Nutrition d/b/a Partners in Quality Care's Appeals of MDE-NPS's July 25, 2022 Decision Denying Claims for Reimbursement for November and December 2021 (on Remand) and January through May 2022, Child and Adult Care Food Program (A22- 1746).

In re the Matter of: Partners in Nutrition d/b/a Partners in Quality Care's Consolidated Appeals of MDE's May 27, 2022 Decision Terminating Agreement and Withholding Federal Award Payments, and the Related June 17, 2022 Site Applications Denial Decision, Child and Adult Care Food Program (A22-1613),

Nos. A22-0965, A22-1613, A22-1746

Court of Appeals of Minnesota

September 18, 2023

Minnesota Department of Education

Kevin D. Conneely, Emily M. Asp, Stinson LLP, Minneapolis Minnesota; and

Mark E. Weinhardt (pro hac vice), The Weinhardt Law Firm, Des Moines, Iowa (for relator Partners in Nutrition)

Keith Ellison, Attorney General, Joseph Weiner, Kathleen Li Reitz Martha J. Casserly, Assistant Attorneys General, St. Paul Minnesota (for respondent Minnesota Department of Education)

Considered and decided by Slieter, Presiding Judge; Frisch, Judge; and Gaitas, Judge.

SYLLABUS

The Minnesota Department of Education may not rely on 2 Code of Federal Regulations sections 200.339-.340 (2023) to terminate an institution's participation in the Children and Adult Care Food Program without complying with the program-specific procedural requirements of 7 Code of Federal Regulations section 226.6(c)(3) (2023).

OPINION

GAITAS, JUDGE

In these consolidated certiorari appeals, relator Partners in Nutrition d/b/a Partners in Quality Care (Partners) challenges four decisions by respondent Minnesota Department of Education (MDE) related to Partners's participation in the Children and Adult Care Food Program (food program). Three of the decisions denied Partners's claims for reimbursement under the food program, and one of the decisions terminated Partners's food-program agreement. We conclude that MDE's termination decision was based on legal error because MDE proceeded under general regulations governing federal awards to nonfederal entities and did not comply with the specific regulations governing foodprogram termination. We therefore reverse MDE's decision terminating Partners's foodprogram agreement. But we are not persuaded by Partners's arguments that MDE's claimdenial decisions are based on legal error, in violation of regulatory or constitutional notice requirements, unsupported by substantial evidence, or arbitrary or capricious. We therefore affirm those decisions.

FACTS

MDE administers the state's participation in the Children and Adult Care Food Program, a federal program overseen by the U.S. Department of Agriculture (USDA) that is "intended to provide aid to child and adult participants and family or group day care homes for provision of nutritious foods that contribute to the wellness, healthy growth, and development of young children, and the health and wellness of older adults and chronically impaired persons." 7 C.F.R § 226.1 (2023). "Federal funds are disbursed to state agencies that are charged with accepting applications for participation and making reimbursement to approved institutions, which may be the facilities providing care or sponsoring organizations that provide meals or facilitate reimbursement to facilities." Partners in Nutrition's Appeal of Disapproval of Site Expansion in CACFP Program, 904 N.W.2d 223, 228 (Minn.App. 2017) (PIN), rev. denied (Minn. Oct. 17, 2017).

Partners participated in the food program as a sponsoring organization until MDE terminated its food-program agreement in May 2022. As a sponsoring organization, Partners was responsible for overseeing sites under its sponsorship and seeking reimbursement from food-program funds. See 7 C.F.R. §§ 226.2 (defining "sponsoring organization"), .16 (detailing sponsoring organization provisions) (2023). Partners's participation in the food program was governed by both the federal regulations, 7 C.F.R. §§ 226.1-.27 (2023) (the food-program regulations), and its food-program agreement with MDE. Under both the regulations and the agreement, Partners accepted "final administrative and financial responsibility" for sites under its sponsorship. 7 C.F.R. § 226.16(c); see 7 C.F.R. § 226.6(b)(4)(ii) (2023).

The events underlying these appeals occurred against the backdrop of MDE's concerns that a different sponsoring organization was fraudulently obtaining food-program funds during the COVID-19 pandemic. Those concerns led to a federal investigation and, ultimately, indictments and plea agreements. The federal investigation is described in search-warrant and arrest affidavits that were made public during 2022. Notwithstanding connections between the targets of the federal investigation and Partners, Partners denies any knowing involvement in the alleged fraudulent scheme.^[1]

Serious Deficiency Notice, Suspension, and Proposed Termination

On March 31, 2021, MDE issued a serious deficiency notice to Partners.^[2] The notice identified serious deficiencies related to three food-program performance standards-financial viability and management, administrative capability, and program accountability-and dictated required corrective actions. MDE required Partners to provide documentation of completion of the required corrective action by April 30, 2021, and notified Partners that if the serious deficiencies were not fully and permanently corrected, MDE would propose to terminate Partners's food-program agreement and disqualify Partners, its executive director, Kara Lomen, and its board president, Jim Handrigan, from future participation in the food program.

On June 16, 2021, MDE notified Partners of its determination that Partners had "fully and permanently corrected the serious deficiencies that were cited in the Serious Deficiency Notice," and that "the serious deficiency determination ha[d] been temporarily deferred." MDE noted, however, that "if, in any subsequent review, any of these serious deficiencies have not been fully and permanently corrected, [MDE] will immediately propose to terminate [Partners's] agreement and propose to disqualify [Lomen and Handrigan] without any further opportunity for corrective action."

Seven months later, on January 20, 2022, MDE notified Partners that it was "suspending payment of claim reimbursement for [Partners] as of January 20, 2022." The letter explained:

This action is being taken in response to the federal investigation of organizations participating in the USDA Child Nutrition programs for mail fraud, wire fraud, conspiracy and money laundering. This investigation was made public through the unsealing of warrants and affidavits on January 20, 2022 by the United States District Court for the District of Minnesota. The warrants and affidavits document [foodprogram] site operators and organizations connected to the investigation. A number of those named are connected to sites sponsored by [Partners]. Therefore, MDE is suspending all payments to [Partners].

MDE relied on language in the food-program regulations providing that "if . . . a State agency has reason to believe that an institution . . . has engaged in unlawful acts with respect to Program operations, the evidence . . . is a basis for nonpayment of claims for reimbursement." 7 C.F.R. § 226.10(f). On January 31, 2022, MDE-relying on the foodprogram regulations-proposed to terminate Partners's food-program agreement and disqualify Partners, Lomen, Handrigan, and others.

On February 2, 2022, MDE provided to Partners a document titled "Meal Claim Instructions during Suspension Period." That document communicated that MDE would require Partners to submit the following documents to support claims for reimbursement: "meal and snack count records"; "attendance records"; "menus for all meals and snacks served"; "receipts and invoices for meals purchased"; and, for at-risk afterschool programs, "documentation of educational and enrichment activities offered to children." Although the "Meal Claim Instructions" linked the documentation request to provisions in the foodprogram regulations that prohibit payment of claims to a suspended institution, it also stated that MDE was requiring additional documentation "[b]ecause [Partners] was found to have submitted false and fraudulent claims."

Partners appealed the January suspension and the proposed termination and disqualification action to an MDE administrative appeal panel, which consolidated the matters, held a hearing, and issued a decision on May 17, 2022.^[3] The MDE appeal panel reversed and remanded for further proceedings. With respect to the suspension, the MDE appeal panel concluded that MDE did not comply with the procedural requirements for suspending Partners under the food-program regulations. With respect to the termination and disqualification, the MDE appeal panel determined that the proposed termination and disqualification was based on different deficiencies than those identified in the March 31, 2021 serious deficiency notice and that MDE had not properly notified Partners of the serious deficiencies that were the basis for the proposed termination and disqualification. The MDE appeal panel described the termination and disqualification decision as "procedurally premature and improper." It remanded for "[MDE] to re-assess the matter and carry out [its] duties in a manner consistent with the applicable federal regulations and procedural rules."

Claim-Denial Decisions-March and April 2022

During the pendency of Partners's appeal of the January suspension and proposed...