        IN THE COMMONWEALTH COURT OF PENNSYLVANIA


JoeAnna McClain, d/b/a, Nana’s          :
Daycare and JoeAnna McClain,            :
individually and Nana’s Daycare,        :
LLC,                                    :
                         Petitioners    :
                                        :
                   v.                   :   No. 1656 C.D. 2017
                                        :   Argued: November 15, 2018
Pennsylvania Department of              :
Education, Division of Food and         :
Nutrition,                              :
                         Respondent     :



BEFORE:     HONORABLE RENÉE COHN JUBELIRER, Judge
            HONORABLE ANNE E. COVEY, Judge (P.)
            HONORABLE CHRISTINE FIZZANO CANNON, Judge




OPINION NOT REPORTED


MEMORANDUM OPINION BY
JUDGE COHN JUBELIRER                        FILED: January 3, 2019


      JoeAnna McClain, d/b/a, Nana’s Daycare, JoeAnna McClain, individually
(McClain), and Nana’s Daycare, LLC (Daycare) (collectively, Petitioners), petition
for review of the September 18, 2017 Determination and Order (Determination) of
a Hearing Examiner dismissing Petitioners’ appeal. By dismissing the appeal, the
Hearing Examiner allowed the Pennsylvania Department of Education’s Division of
Food and Nutrition (together, Department) to proceed with its August 19, 2015
Notice of Proposed Termination and Disqualification (Termination Notice) to
individually disqualify McClain and terminate Daycare’s current and future
participation in the Child and Adult Care Food Program (Program).                             The
Department, after review and audits, determined that Daycare did not maintain
documentation for the eligible meals it served and claimed for Program
reimbursement each month, as required by federal regulations. Because of this, the
Department issued its Termination Notice and demanded repayment of $504,758.56,
the amount it alleges was overpaid to Daycare in Program funds. Before this Court,
Petitioners challenge the factual findings and legal conclusions made by the Hearing
Examiner. Because the factual findings are supported by substantial evidence, and
the legal conclusions are not in error, we affirm.


   I. Program Background
        In order to understand the present case, it is helpful to review the relevant
portions of the detailed regulatory scheme governing the Program. The Program,
funded by the Food and Nutrition Services Department (FNS) of the United States
Department of Agriculture (USDA), was created pursuant to the Richard B. Russell
National School Lunch Act. 42 U.S.C. §§ 1751 – 1769j; 7 C.F.R. § 226.1. The
Program “provide[s] 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 [its participants].” 7 C.F.R. § 226.1. The USDA makes
funds available yearly to state agencies, which administer the Program, to reimburse
participating institutions,1 such as daycares, “for their costs in connection with food
service operations.” 7 C.F.R. §§ 226.1, 226.3, 226.4(a). In addition, the state

       1
         The Program regulations define “[i]nstitution” to include “a . . . child care center . . .
which enters into an agreement with the State agency to assume final administrative and financial
responsibility for Program operations.” 7 C.F.R. § 226.2.


                                                2
agencies monitor and assist institutions within the Program. 7 C.F.R. § 226.6(a).
Through its Division of Food and Nutrition, the Department administers the Program
in Pennsylvania.
       As part of Program requirements, the Department is required to conduct
administrative reviews of participating institutions every three years. 7 C.F.R.
§ 226.6(i)(5). An administrative review is an off-site or on-site evaluation to review
“both critical and general areas” of an institution’s performance over the course of
one month. 7 C.F.R. § 210.18(b), (c). The Department may also request the
Pennsylvania Office of the Budget, Bureau of Audits (Budget Office), to perform
more extensive audits on participating institutions to determine Program
compliance. 7 C.F.R. § 226.6(i)(5).2 In both administrative reviews and audits, the
Department or the Budget Office reviews the documentation institutions must
maintain and verify that the institution’s monthly reimbursement claims are
accurate. Claims are “not properly payable if an institution does not comply with
recordkeeping requirements.” 7 C.F.R. §§ 226.14(a), 226.15(e).
       If the Department learns through an administrative review or audit that an
institution is in violation of regulatory requirements, recordkeeping or otherwise, it
shall require the institution to submit a corrective action plan (CAP) which, when
implemented, would correct the institution’s specific violations.                           7 C.F.R.
§ 210.18(j). The Department also must provide assistance to the institution to bring
it into compliance. 7 C.F.R. § 210.18(l)(2)(v)(A). If the Department has provided
technical assistance and sought corrective action, but the institution remains

       2
         Section 226.6(i)(5) states that contracts between the Department and an institution must
require the institution to have its books and records pertaining to its food service operations
“available for inspection and audit by representatives of the State agency . . . for a period of [three]
years from the date of receipt of final payment under the contract.” 7 C.F.R. § 226.6(i)(5).



                                                   3
noncompliant, the Department shall take fiscal action3 to obtain repayment of the
overpaid amounts that are unsupported by the documents. 7 C.F.R. §§ 210.18(j),
(l)(2)(v), 210.19(c).
       If regulatory compliance issues persist and the Department finds that an
institution has committed one or more “serious deficiencies,”4 the Department shall
issue a notice of serious deficiency advising both the institution and the individuals
responsible for the institution5 of the specific deficiencies and necessary corrective
actions. 7 C.F.R. § 226.6(c)(3)(iii)(A). A notice of serious deficiency also contains
a warning to the institution that “failure to fully and permanently correct the serious


       3
          Fiscal action is part of a state agency’s responsibility to “ensur[e] Program integrity” by
taking action for claims “that are not properly payable.” 7 C.F.R. § 210.19(c). Fiscal action is
defined to include “the recovery of overpayment through direct assessment.” 7 C.F.R.
§ 210.19(c)(1).
        4
          A list of serious deficiencies is provided in 7 C.F.R. § 226.6(c)(3)(ii) and includes
“[f]ailure to operate the Program in conformance with performance standards,” “[f]ailure to
perform any of the other financial and administrative responsibilities required by this part,”
“[f]ailure to maintain adequate records,” and “[c]laiming reimbursements for meals not served to
participants.”
        5
          The regulations state that when a proposed termination and disqualification is enforced,
it applies not only to the institution but also to the institution’s responsible principals and
individuals. 7 C.F.R. § 226.6(c)(3)(iii)(E)(1). “Principal” is defined by the regulations as “any
individual who holds a management position within, or is an officer of, an institution or a
sponsored center.” 7 C.F.R. § 226.2. A “[r]esponsible principal or responsible individual” is
defined as:

       (a) A principal, whether compensated or uncompensated, who the [s]tate agency or
       FNS determines to be responsible for an institution’s serious deficiency;

       (b) Any other individual employed by, or under contract with, an institution or
       sponsored center, who the [s]tate agency or FNS determines to be responsible for
       an institution’s serious deficiency; or

       (c) An uncompensated individual who the [s]tate agency or FNS determines to be
       responsible for an institution’s serious deficiency.

Id.


                                                 4
deficiency(ies) within the allotted time will result in the [s]tate agency’s proposed
termination of the institution’s agreement and the proposed disqualification of the
institution and the responsible principals and individuals” of the institution. 7 C.F.R.
§ 226.6(c)(3)(iii)(A)(5). If “corrective action is not taken to fully and permanently
correct the serious deficiency” after a notice of serious deficiency, the state agency
shall notify the institution and its responsible principals of the proposed termination
of the Program agreement and disqualification of “the institution and the responsible
principals and responsible individuals” from future Program participation. 7 C.F.R.
§ 226.6(c)(3)(iii)(C). Until participation is officially “suspended, the institution may
continue to participate” in the Program and receive reimbursement for eligible
meals. 7 C.F.R. § 226.6(c)(3)(iii)(C)(5). The Department shall take fiscal action for
the funds that were overpaid to the institution as a result of all serious deficiencies
leading to the proposed termination. 7 C.F.R. § 226.14. Once the Department issues
a notice of proposed termination and disqualification and demand of overpayment,
it must hold an administrative review for the institutions, responsible principals, and
responsible individuals. 7 C.F.R. § 226.6(k)(2)(iii), (iv), (xi). The determination
made by the hearing examiner after the hearing is “the final administrative
determination to be afforded the institution and the responsible principals and
responsible individuals.” 7 C.F.R. § 226.6(k)(5)(x).


   II. The Hearing
      In accordance with the above regulatory scheme, the Department issued a
Notice of Serious Deficiency in 2015 (2015 Serious Deficiency Notice) and then the
Termination Notice on August 19, 2015, which Petitioners appealed on August 31,
2015. (Determination, Findings of Fact (FOF) ¶¶ 79-80.) Due to changes in counsel,



                                           5
scheduling conflicts, and continuances, a hearing was not held until April 24-25,
2017. (See Determination at 1-4.) On April 6, 2017, Petitioners’ counsel requested
permission to depose a Department auditor as a discovery tool, which the Hearing
Examiner denied, reasoning that discovery is not generally permitted in
administrative hearings, and the hearing proceeded as scheduled. (Determination at
4; Order Denying Discovery, Reproduced Record (R.R.) at 81a-84a.)6
       The Department presented three witnesses at the hearing: the Director of
Child Nutrition Programs for the Department’s Division of Food and Nutrition (DFN
Director), and two employees from the Budget Office, the assistant director
(Assistant Director) and an audit specialist (Audit Specialist). Petitioners presented
the testimony of Daycare’s Director (Daycare Director), as well as their own
independent accountant (Accountant).
       DFN Director testified first on behalf of the Department and recalled that
Daycare became a participating institution of the Program in 2010.7 (FOF ¶ 15; R.R.
at 54b.) DFN Director explained that the Department conducted three on-site
administrative reviews of Daycare, the first of which occurred in August 2010,
shortly after Daycare became a participating institution; the other two occurred in
June 2012 and March 2013. During the first administrative review in August 2010,
DFN Director testified, the Department found Daycare was not maintaining current
enrollment and eligibility paperwork as required. (FOF ¶ 17; R.R. at 58b-59b.)
According to DFN Director’s testimony, the Department took fiscal action for that
month’s overpayment in the amount of $2,900 and directed Daycare to submit a


       6
         Petitioners have produced two volumes of reproduced records. Volume One contains
pages 1a through 84a, and volume two contains pages 1b through 303b.
       7
         At that time, Daycare had approximately 30 to 50 children enrolled; by the time of the
hearing, enrollment had grown to approximately 345 children. (R.R. at 185b.)


                                              6
CAP, which it did. (FOF ¶¶ 18, 21-22; R.R. at 59b, 61b, 62b-63b.) In the June 2012
administrative review, DFN Director stated the Department found the same
problems persisted, reflecting that Daycare had not implemented the 2010 CAP.
(FOF ¶ 26.) DFN Director testified that the Department again took fiscal action for
that month in the amount of $1,670 and required another CAP, which Daycare
provided.    (Id. ¶¶ 26-27; R.R. at 61b-63b, 85b, 90b-91b.)         DFN Director
acknowledged that, although the Department provided technical assistance to
Daycare after the administrative reviews to correct deficiencies of incomplete or
inaccurate documentation, the problems remained. (FOF ¶¶ 31, 37; R.R. at 87b-88b,
98b.) DFN Director stated that during the March 2013 administrative review, the
Department found Daycare still had not corrected its compliance errors. (FOF ¶ 28;
R.R. at 63b, 85b.) Specifically, DFN Director testified the Department found
Daycare was not implementing its CAP procedures and problems existed on a “more
extensive level,” as children’s enrollment forms and applications were missing,
meals were claimed for children who did not currently attend Daycare, and meal
count errors persisted.   (R.R. at 63b, 85b.)    DFN Director recalled that the
Department took fiscal action for the month of March 2013, this time in the amount
of $17,000, and required a CAP, but Daycare did not comply. (FOF ¶ 29; R.R. at
63b, 65b.)    As DFN Director explained, Daycare had missing or outdated
applications and enrollment forms that did not support Daycare’s reimbursement
claims, which made it deficient under the Program. When Daycare did not timely
submit a CAP, the Department needed to issue a serious deficiency notice. (R.R. at
49b-50b.) Therefore, the Department issued its first notice of serious deficiency,
DFN Director testified, at which time Daycare submitted a CAP, and the Department




                                        7
temporarily deferred the serious deficiency as permitted by 7 C.F.R.
§ 226.6(c)(3)(iii)(B)(1)(i). (FOF ¶¶ 34, 35.)
      The Assistant Director from the Budget Office testified that when the
Department found Daycare’s recurring deficiencies in administrative reviews, it
requested the Budget Office to perform a limited audit of Daycare by reviewing
documents from October 1, 2010 through September 30, 2012. (FOF ¶ 39; R.R. at
12b, 16b, 42b.) Assistant Director explained that Budget Office auditors followed
the same standards and procedures used in administrative reviews and reviewed
meal count sheets, enrollment forms, and applications, and if a child’s enrollment
form or application was missing or incomplete, the meals claimed for that child
would be non-reimbursable and added to the overpayment total. (FOF ¶ 40; R.R. at
9b-12b, 31b-32b.) According to Assistant Director, the Budget Office completed
the limited audit and produced its report on November 8, 2013, which noted the same
problems the Department discovered in its administrative reviews, such as
incomplete or missing applications and enrollment forms. (FOF ¶¶ 42, 47; R.R. at
12b.) Assistant Director explained that when the Department reviewed the Budget
Office’s limited audit report of November 8, 2013, and recommendation for a full
audit, the Department requested the Budget Office to perform a full performance
audit (Full Performance Audit) covering three years, from October 1, 2010, through
September 30, 2013. (FOF ¶¶ 14, 49; R.R. at 12b.) Assistant Director stated that
the Full Performance Audit revealed a lack of adequate documentary support for
Daycare’s meal reimbursement claims for this three-year period, such that




                                          8
$504,758.56 of the $744,797.17 the Department had paid to Daycare for its claims
over the relevant time could not be verified. (FOF ¶¶ 66, 68;8 R.R. at 9b.)9
       Audit Specialist, who was present for both the limited audit and Full
Performance Audit, also testified. (R.R. at 108b-09b.) Audit Specialist testified that
the Full Performance Audit was delayed when a water main break on December 23,
2013, flooded the Daycare facility and temporarily displaced Daycare and its files,
but the Budget Office was able to begin its Full Performance Audit in March 2014.
(FOF ¶¶ 51, 54-55; R.R. at 123b-24b.) Audit Specialist explained that no documents
had been destroyed after the water main break and the Budget Office auditors were
able to review all necessary documentation. (R.R. at 123b, 139b.) As noted in the
Full Performance Audit Report, Audit Specialist agreed that the Budget Office
auditors found missing, incomplete, and inaccurate applications and enrollment
forms. (FOF ¶ 47; R.R. at 130b.)
       In Petitioners’ defense, Daycare Director contested the testimony from the
Assistant Director and Audit Specialist about the status of Daycare’s documentation
and whether it was missing or destroyed. Daycare Director testified she was familiar
with the recordkeeping done at Daycare and acknowledged that enrollment forms,
applications, and meal count sheets had to be presented for administrative reviews
and audits. (R.R. at 143b, 148b.) Contrary to Audit Specialist’s testimony, Daycare
Director testified that the flooding of the Daycare facility damaged some records and


       8
           In FOF ¶ 68, the Hearing Examiner identified the amount of overpayment as $506,412.19.
Nonetheless, the Full Performance Audit reflected an overpayment amount of $504,758.56, which
is also the figure used by the Hearing Examiner in the order. Accordingly, we will use the latter
figure of $504,758.56.
         9
           According to the Department, the $504,758.56 overpayment assessment did not include
the amounts upon which the Department previously took fiscal action following the administrative
reviews. (FOF ¶ 64.)


                                               9
contributed to why so many required documents were missing during the Full
Performance Audit. (Id. at 171b, 196b.)
       Daycare also presented the testimony of Accountant, who contested the
Department’s calculation of the overpayment. Accountant, who was hired by
Daycare in November 2016 after the Full Performance Audit and Termination
Notice,10 testified as to her methodology in calculating approximately $50,000 in
overpayment, rather than the $504,758.56 alleged by the Department. Accountant
stated that she reviewed meal count sheets Daycare provided to her and compared
those to the monthly amounts Daycare claimed for reimbursement, but she did not
review documents related to children’s eligibility or enrollment. (R.R. at 224b,
238b, 260b-67b.) Accountant admitted that while she had never conducted a
Program audit, she felt that her review did not require special knowledge of the
Program, and she was confident in her calculation. (Id. at 244b, 260b, 262b.)


   III.     Hearing Examiner’s Determination
       Based upon the evidence presented, the Hearing Examiner concluded the
Department met its burden of showing Daycare received $504,758.56 of overpaid
funds and accordingly dismissed Petitioners’ appeal. (Determination, Conclusion of
Law ¶ 7.)      The Hearing Examiner’s Determination rested primarily upon her
decision not to give any weight to the testimony of Petitioners’ witnesses. The
Hearing Examiner noted that no request was made to qualify Accountant as an
expert; thus she remained a fact witness whose testimony the Hearing Examiner
“discounted in its entirety” because Accountant was unfamiliar with Program


       10
         Accountant testified she was hired as an expert by Daycare for this case and did not serve
as Daycare’s personal accountant. (R.R. at 221b-22b.)


                                               10
regulations and did not review the proper documentation to make her calculations.
(Determination at 29, 31.)
      The Hearing Examiner characterized the testimony of Daycare Director as
“inconsistent or unclear” which “render[ed] most of her testimony unreliable;” thus
she gave it no weight. (Id. at 33.) Specifically, the Hearing Examiner found that
Daycare Director gave conflicting testimony about Daycare’s specific deficiencies
found in administrative reviews, her knowledge of the obligation to reimburse
overpaid claims, and Daycare’s overall recordkeeping. The Hearing Examiner
found that Daycare Director’s testimony did not contradict the findings of the Full
Performance Audit report and, to the extent it was consistent with the report,
confirmed only that Daycare “failed to maintain adequate documentary support” for
its claims during the relevant period. (Id. at 37.)
      Although the Hearing Examiner made no specific determinations about the
credibility of the Department’s witnesses, she credited that testimony by implication
through her reliance on that testimony and specifically finding that the testimony
from Petitioners’ witnesses should not be given weight. The Hearing Examiner
relied upon the testimony provided by the Department to establish that Daycare had
repeat deficiencies over the years, which resulted in Daycare receiving “unsupported
reimbursements.” (Id. at 27-29.)
      Before the Hearing Examiner, Petitioners argued the Department was barred
by the doctrines of laches and estoppel from recovering the overpayment.
Petitioners urged the Hearing Examiner to find that the Department did not prove
Daycare ever received Program funds for which it did not account. Further,
consistent with Accountant’s testimony, Petitioners maintained that if Daycare
received any funds unsupported by its documentation, the total overpayment amount



                                          11
was substantially less than $504,758.56. (Petitioners’ Post-Hearing Brief, Certified
Record (C.R.) Item No. 4, at 6-8.) The Hearing Examiner rejected Petitioners’
arguments that the Department was barred by laches and estoppel. Finding that the
Department did not act with delay between the time of the Full Performance Audit
and the Notice of Serious Deficiency, the Hearing Examiner determined laches did
not apply. The Hearing Examiner also reasoned that there was no misrepresentation
because Daycare, as a Program institution, was on notice of the regulatory
procedures and its obligation to conform with those procedures; thus Petitioners’
estoppel argument did not succeed.
      Additionally, the Hearing Examiner rejected Petitioners’ assertion that the
Department did not prove Daycare had received funds for which it did not account.
Primarily, the Hearing Examiner found the issue to be waived, as it was not raised
until the post-hearing brief. However, Hearing Examiner additionally determined
that the argument was not supported by the record, which included the Department
witnesses’ uncontradicted testimony that the Department had paid the funds to
Daycare. The Hearing Examiner found that Petitioners “ha[d] not provided any
competent or reliable evidence that would contradict or challenge [the Department’s]
evidence,” and the Department was required to take fiscal action to recover the
unsupported claims under 7 C.F.R. § 226.14. (Determination at 49.) Therefore, the
Hearing Examiner dismissed the appeal and allowed the Department to proceed with
its termination of Daycare’s Program agreement, disqualification of Daycare and the
responsible principals, McClain and Daycare Director, from future Program
participation, and fiscal action to recover the $504,758.56 in Program funds paid to
Daycare that were unsupported by the records. (Id. at 51.)




                                        12
   IV.      Arguments on Appeal
       On appeal,11 Petitioners raise six issues for our consideration. Petitioners
assert the Department is barred first, by the doctrine of laches and, second, by the
doctrine of estoppel from taking fiscal action for any overpaid meals in the three-
year period at issue. Third, in Petitioners’ view, the Department did not prove by
substantial evidence that Daycare received funds for which it did not account.
Fourth, Petitioners claim that, at most, the overpayment amount was $49,562, as
testified to by their expert witness Accountant. Fifth, Petitioners contend the
Hearing Examiner deprived them of due process when she denied the request to
depose the Department’s auditor, because Section 35.112 of the General Rules of
Administrative Practice and Procedure (GRAPP) provides that discovery may be
properly considered at a prehearing conference, see 1 Pa. Code § 35.112. Sixth and
last, Petitioners assert the Department provided no evidence that McClain and
Daycare were “one and the same,” and thus her proposed individual disqualification
should be dismissed. (Petitioners’ Brief (Br.) at 63-64.)
       The Department responds that the defenses of laches and estoppel are not
supported by evidence, citing its multiple administrative reviews and regulatory
requirements to show due diligence and notice to Daycare of its deficiencies.
Additionally, the Department contends that Petitioners have waived the argument
that there was insufficient evidence Daycare received funds for which it did not
account by not raising that argument at the hearing. Emphasizing the conclusive
nature of the Hearing Examiner’s determinations of evidentiary weight, the


       11
           Our “review is limited to determining whether constitutional rights were violated,
whether an error of law was committed or whether necessary findings of fact are supported by
substantial evidence.” William Penn Sch. Dist. v. Dep’t of Educ., Div. of Food & Nutrition, 902
A.2d 583, 586 n.3 (Pa. Cmwlth. 2006).


                                              13
Department urges this Court to affirm the Hearing Examiner’s conclusion that
Daycare received $504,758.56 in Program funds that were not properly payable to
it. Additionally, the Department argues there was no violation of due process in
denying Daycare’s discovery request because, while GRAPP may allow for
discovery, it is not mandatory.      Last, the Department asserts that Petitioners’
contention that McClain cannot be individually disqualified is waived because
Petitioners did not raise it during the hearing.


   V. Analysis
   1. Whether the Department is barred by laches from seeking reimbursement for
      the overpayment.
      Petitioners contend that the Department is barred by laches, as it acted with
delay in pursuing its proposed termination of Daycare. The doctrine of laches
“bar[s] relief when the complaining party has not been diligent in instituting his or
her action to the prejudice of another.” United Bhd. of Carpenters & Joiners of Am.,
Local 261 v. Pa. Human Relations Comm’n, 693 A.2d 1379, 1382 (Pa. Cmwlth.
1997). The mere passage of time is not enough to impute laches; rather, the party
asserting the defense must show harm resulting from the delay. Harrington v. Dep’t
of State, 427 A.2d 719, 721 (Pa. Cmwlth. 1981). A finding of laches is a factual
determination made “by examining the circumstances of each case.” United Bhd. of
Carpenters, 693 A.2d at 1383.
      Petitioners argue that the Department acted with delay by not issuing its 2015
Serious Deficiency Notice until well after the first administrative review in August
2010. According to Petitioners, the Department prejudiced Daycare by allowing it
to “accrue[] a crushing amount of debt” over five years before the Department
addressed the problem. (Petitioners’ Br. at 40.) However, we agree with the Hearing


                                          14
Examiner’s conclusion that the Department did not act with delay in notifying and
taking action for Daycare’s deficiencies nor was Daycare harmed by any delay. The
Department conducted three administrative reviews over the course of three years
and, in accordance with the Program’s regulatory requirements, took fiscal action
for the noncompliance it found in each of those reviews.           Additionally, the
Department communicated to Daycare the specific deficiencies it discovered and
required CAPs targeting those deficiencies. Nonetheless, the Department found in
each successive administrative review that Daycare did not comply with its
submitted CAPs to bring its recordkeeping into compliance with the Program.
      Between the first administrative review in 2010 and the 2015 Serious
Deficiency Notice, the Department gave Daycare at least three different
opportunities to bring its recordkeeping into compliance with the regulations. In
fact, we note that when Daycare untimely submitted a CAP after the March 2013
administrative review, the Department deferred a serious deficiency notice, which
allowed Daycare one more opportunity to correct its procedures. Because of these
repeated deficiencies, the Department resorted to requests for a limited audit and,
finally, the Full Performance Audit.       It was after the conclusion of three
administrative reviews, one limited audit, and one full performance audit, all
showing the same persistent deficiencies over a three-year period, that the
Department proceeded, all of which is in accordance with the process set forth in the
regulations for proposed termination. See 7 C.F.R. § 226.6(c)(3)(iii)(C). The
Department did not unduly delay in taking action, but acted timely at each stage of
the process through its reviews and audits. Further, while the Budget Office’s Full
Performance Audit was delayed, this indisputably resulted from the water main
break, which was not the fault of either party. After receiving the Budget Office’s



                                         15
Full Performance Audit report in May 2015, the Department issued its 2015 Notice
of Serious Deficiency in July 2015, which does not reflect a delay that would cause
Daycare prejudice. Finally, in the last step of the process, the Department promptly
issued the Termination Notice when Daycare did not respond to the 2015 Serious
Deficiency Notice.12 (FOF ¶¶ 77, 79.)
       The goal of the Program is to provide nutrition to those who need and qualify
for it. The regulations promote this by providing multiple opportunities for review
and assistance to participating institutions, like Daycare. Rather than terminating an
institution when an error is made, the regulations require a process to bring the
participating institution into compliance. The regulatory scheme recognizes that
compliance errors can occur and gives institutions time to correct those errors before
initiating termination actions. The Department followed the required process for
remedying noncompliance, in which CAPs are required, assistance is provided, and
administrative reviews are utilized before the Department resorts to full performance
audits and notices of serious deficiency. We do not find this to constitute undue
delay. Moreover, Daycare has not shown that it was prejudiced by the lapse of time
while the Department followed its process in an attempt to bring Daycare into
compliance. Petitioners argue Daycare was prejudiced because the Department
allowed Daycare to accrue over $500,000 of overpayment before issuing the
Termination Notice.        However, as previously explained, the Department kept
Daycare advised of its repeated deficiencies from 2010 to 2015, provided Daycare


       12
         Although it does not alter our analysis or conclusion that the Department did not act with
delay in pursuing its action, we note the significant lapse of time between the issuance of the
Termination Notice and the hearing. During those nearly two years, Petitioners continually sought
extensions and even obtained new counsel just weeks before the first scheduled hearing date in
September 2016. To the extent any delay existed between the Termination Notice and the
Determination, it cannot be attributed to the Department. (See Determination at 2-4.)


                                                16
assistance, and sought corrective action to prevent future deficiencies. Daycare was
on notice of its recordkeeping deficiencies and obligation to repay unsupported
funds; therefore, it was not prejudiced by accrual of overpayment during the five-
year period in which the Department sought to correct Daycare’s noncompliance.
Because the Department did not act with delay and Petitioners were not prejudiced,
the Hearing Examiner properly rejected the laches argument.


   2. Whether the Department is barred by estoppel from seeking reimbursement
      for the overpayment.
      Petitioners contend that the Department made various misrepresentations to
Daycare and is now barred by the doctrine of estoppel from proceeding on its fiscal
action and Termination Notice. “[E]stoppel recognizes that an informal promise . . .
which leads another to rely justifiably thereon to [their] own injury or detriment[]
may be enforced.” Foster v. Westmoreland Cas. Co., 604 A.2d 1131, 1134 (Pa.
Cmwlth. 1992) (quoting Novelty Knitting Mills, Inc. v. Siskind, 457 A.2d 502, 503
(Pa. 1983)). In order to assert “the doctrine of equitable estoppel [against] a
Commonwealth agency,” the following must be shown:

      the party to be estopped (1) must have intentionally or negligently
      misrepresented some material facts; (2) knowing or having reason to
      know that the other party would justifiably rely on the
      misrepresentation; and (3) induced the party to act to his or her
      detriment because of a justifiable reliance upon the misrepresented
      facts.

Id. According to Petitioners, the Department made misrepresentations to Daycare
by providing assistance to correct deficiencies and renewing its Program agreement.
Petitioners also assert the Department repeatedly represented that Daycare was in
good standing with the Program, even specially recognizing Daycare for its success


                                        17
in meeting certain requirements by issuing it a Letter of Satisfactory Action in 2012
and a Certificate of Achievement in March 2016. Petitioners cite these actions, along
with the Department’s approval of Daycare’s submitted CAPs, as misrepresentations
of Daycare’s Program compliance for many years. (Petitioners’ Br. at 37-38.)
      We agree with the Hearing Examiner that Petitioners’ estoppel argument does
not meet the test set forth in Foster and Novelty Knitting. The Department kept
Daycare informed of its deficiencies beginning with the first administrative review
in 2010 through to the 2015 Notice of Serious Deficiency. The Department’s
assistance was not a misrepresentation, but part of its regulatory obligation to
provide assistance to institutions and seek corrective action before resorting to fiscal
actions and, eventually, notices of serious deficiency and proposed termination
notices. 7 C.F.R. § 210.18(l)(2)(v). Petitioners are incorrect that the approval of a
CAP or continued renewal of an agreement with an institution constitutes a
misrepresentation. CAPs are action plans that, if followed, are intended to correct
noncompliance so that identified deficiencies will not occur in the future. The
Department’s approval of them, however, is not a representation that the institution’s
future noncompliance will be excused if the institution does not comply with its
CAP. See 7 C.F.R. § 226.6(c)(3)(iii)(A)(5) (specifying that notices of serious
deficiency must inform institutions “[t]hat failure to fully and permanently correct”
the deficiencies in the required time will result in disqualification and termination).
      Furthermore, Petitioners mischaracterize the Department’s 2012 Letter of
Satisfactory Action as a representation of good standing. The letter cited by
Petitioners confirms the procedures of the July 2012 administrative review and
notifies McClain that the CAP submitted in response to that administrative review
was received. (R.R. at 45a.) This letter merely informs McClain that if Daycare



                                          18
follows the steps in its CAP, it will correct the specific deficiencies found in the
administrative review. It does not represent that Daycare had fully and permanently
corrected its deficiencies. To the contrary, it even reiterates that the Department will
take fiscal action for the deficiencies found in that administrative review.
      The Certificate of Achievement cited by Petitioners is also incorrectly
represented, as that document indicates only that Daycare Director completed a
course in Program Performance Standards. Moreover, Daycare Director herself
testified that this Certificate of Achievement related to training that was required as
a part of corrective action for Daycare’s deficiencies. (Id. at 49a, 144b-45b.) Again,
this document does not stand for the proposition that the Department misrepresented
anything to Daycare. If anything, it is further evidence that Daycare was on notice
of its deficiencies for many years.
      We also reject Petitioners’ argument that the Department’s continued renewal
of Daycare’s Program agreement is a misrepresentation. Program regulations state
that after a proposed disqualification is issued, “the institution may continue to
participate and receive Program reimbursement for eligible meals served and
allowable administrative costs incurred until [the] administrative review is
completed”     “unless    participation   has    been    suspended.”        7   C.F.R.
§ 226.6(c)(3)(iii)(C)(5). Thus, the fact that the Department continued to allow
Daycare to participate in the Program and receive reimbursements until Daycare’s
termination was finalized is not a representation of compliance. This is particularly
true in light of the administrative reviews, audits, and notices informing Daycare
otherwise.
      Finally, we note that Daycare, as a Program institution, should have been
aware of its obligations under Program regulations and the potential termination of



                                          19
its Program agreement if those obligations were not met. See Quinn v. Dep’t of
State, Bureau of Prof’l & Occupational Affairs, 650 A.2d 1182, 1185 (Pa. Cmwlth.
1994) (acknowledging that a regulated entity is “charged with knowledge of the
applicable regulations and . . . [cannot] establish reasonable reliance upon [an
agency’s alleged] misrepresentation”). Therefore, Petitioners can establish neither
a misrepresentation nor reliance on that alleged misrepresentation. The record
shows that the Department acted in accordance with its duties under Program
regulations and made no misrepresentations to Daycare regarding its compliance.


   3. Whether there is substantial evidence to support the findings that Daycare
      received Program funds for which it did not account.
       Petitioners contend that the Department did not prove Daycare received funds
that were unsupported by its documentation. (Petitioners’ Br. at 53-54.) In the
Determination, the Hearing Examiner characterized this issue as Petitioners
asserting “that [Daycare] never had received any of the funds that [the Department]
seeks to reclaim here,” and found the argument waived. (Decision at 46.) However,
Petitioners’ argument before the Hearing Examiner and before this Court more
specifically goes to whether there is substantial evidence to support a finding that
Daycare received Program funds, which were unsupported by the required
documentation.
       Hearing examiners, as fact finders,13 are “the sole arbiter[s] of credibility,”
with “the responsibility to resolve conflicts in testimony arising from
inconsistencies,” and this Court is bound by those determinations. M.T. v. Dep’t of
Educ., 56 A.3d 1, 7 (Pa. Cmwlth. 2010). Further, matters of “evidentiary weight are

       13
           Under Program regulations, “[t]he determination made by [an] administrative review
official is the final administrative decision to be afforded the institution and the responsible
principals and responsible individuals.” 7 C.F.R. § 226.6(k)(5)(x).


                                              20
properly within the exclusive discretion of the fact finding agency,” Thorpe v. Public
School Employees’ Retirement Board, 879 A.2d 341, 348 (Pa. Cmwlth. 2005)
(internal quotation omitted), and we do not review them so long as the determination
is supported by substantial evidence, Greenwich Collieries v. Workmen’s
Compensation Appeal Board (Buck), 664 A.2d 703, 706 (Pa. Cmwlth. 1995).
“Substantial evidence is such relevant evidence as a reasonable mind might accept
as adequate to support a conclusion.” William Penn Sch. Dist. v. Dep’t of Educ.,
Div. of Food & Nutrition, 902 A.2d 583, 586 n.3 (Pa. Cmwlth. 2006). In determining
whether substantial evidence exists, “it is irrelevant that the record reveals evidence
that would support a contrary finding;” instead our inquiry is only whether the record
has “substantial evidence supporting the actual findings that were made.”
Williams v. Workers’ Comp. Appeal Bd. (USX Corp.-Fairless Works), 862 A.2d 137,
143-44 (Pa. Cmwlth. 2004) (emphasis added).
      Petitioners argue that the Department’s witnesses lacked personal knowledge
of the documents upon which the audits were based, and therefore their testimony
should be stricken.    (Petitioners’ Br. at 53.)    Further, Petitioners portray the
testimony from the Department’s witnesses as showing only an “obsession with
paperwork and forms without regard as to whether that paperwork and those forms
actually reflect the situation on the ground at . . . [Daycare].” (Id. at 54.) Because
the Department’s witnesses focused only upon whether certain documents were
present at the time of the Full Performance Audit and not “what monies actually
flowed in and out of [Daycare],” Petitioners argue that there is not substantial
evidence to support finding Daycare’s receipt of unaccounted funds. (Id. at 52, 57.)
Finally, Petitioners note that any of Daycare’s deficiencies arising from missing
documentation should be attributed to the water main break at the facility in 2013



                                          21
and not considered a reflection of what eligible meals were actually served and
claimed at Daycare. (Id. at 56-57.)
      We conclude that there is substantial evidence to support a finding that
Daycare received funds which its documentation did not support. While Petitioners
are correct that two Department witnesses did not have personal knowledge of the
documents that were reviewed during the Full Performance Audit, the Department
also presented Audit Specialist, who was on the team that personally performed the
audits. (R.R. at 108b-09b.) Audit Specialist testified that he reviewed every
document that was made available to the Budget Office auditors and none of those
records were irreparably damaged after the water main break. (Id. at 123b, 139b.)
According to the Audit Specialist, the Budget Office auditors found there were
missing enrollment and application forms that Daycare was required to have
pursuant to the regulations, which resulted in unsubstantiated meal claims. (Id. at
130b, 135b-36b.) Audit Specialist stated that at the end of the auditors’ visits for the
limited audit and Full Performance Audit, they would provide Daycare with a list of
missing items to allow Daycare the opportunity to look for and produce those
documents. (Id. at 128b.) As DFN Director testified, although Daycare could not
backdate missing records, it could have notified the Department of any missing
records and obtained replacements for them, which would be considered effective
as of the replacement date. (Id. at 279b-80b.) However, Daycare did not do that.
Audit Specialist’s testimony is substantial evidence to support a finding that Daycare
did not have the documentation it needed to support its claims and, therefore,
received funds that its documentation did not support.
      The evidence Petitioners presented to contest this was Daycare Director’s
testimony that the documents were destroyed after the water main break, which the



                                          22
Hearing Examiner discredited and did not give any evidentiary weight. This
decision to discredit Daycare Director’s testimony was supported by the record,
particularly Daycare Director’s inconsistent and unreliable account of Daycare’s
deficiencies and recordkeeping procedures. (Determination at 33, 35.) For example,
Daycare Director testified first that she understood Daycare would need to reimburse
the Department if records were not properly kept. (R.R. at 158b.) Shortly thereafter,
she testified to the contrary, stating she was unaware of that obligation. (Id. at 184b,
195b.) Additionally, while Daycare Director testified at one point that required
documents were missing due to the flood from the water main break, she later
testified that not all missing documents could be attributed to that incident. (Id. at
184b, 195b-96b.) The Hearing Examiner’s credibility determination about Daycare
Director is supported by the record and binding.
      Moreover, to the extent that the rest of Petitioners’ argument for this issue
relies upon a contention that the documents reviewed by the Budget Office did not
reflect what meals it actually served, it ignores the purpose of Program’s regulatory
requirements. We recognize Daycare believes it distributed meals to enrolled and
eligible students and is frustrated that the documentation reviewed by the Budget
Office was found to be noncompliant. However, audits are retrospective by nature,
and the maintenance of required documentation is the only mechanism by which the
Department can verify the accuracy of the claims after the distribution of funds.
Because the Department cannot be present at institutions to ensure only enrolled and
eligible children receive the meals that will be claimed, it is incumbent upon
institutions, such as Daycare, to meticulously maintain its records in accordance with
federal regulations. In the absence of such records, the Department has no other




                                          23
option under the regulations than to determine that the institution cannot support the
claim.


   4. Whether the amount of Program fund overpayment was $504,758.56.
         Petitioners argue that even if Program funds were overpaid, the total
overpayment is merely $49,562 and not $504,758.56. This argument essentially
contests the Hearing Examiner’s evidentiary weight and credibility determinations.
As discussed above, we are bound by a hearing examiner’s conclusive
determinations about credibility and evidentiary weight. M.T., 56 A.3d at 7; Thorpe,
879 A.2d at 348. Further, we inquire only into whether there is substantial evidence
to support a hearing examiner’s actual findings, not whether the evidence presented
would support a contrary finding. Williams, 862 A.2d at 143. Petitioners urge us to
find that Accountant provided expert testimony correctly establishing approximately
$50,000 of overpayment. This would require us to credit and reweigh the testimony
of Daycare’s witness and the testimony of the Department’s witnesses, which we
cannot do.
         The Hearing Examiner did not give evidentiary weight to the testimony from
Daycare’s witnesses and provided a detailed explanation for that decision, which is
supported by the record. (Determination 29-37.) The hearing transcript supports the
Hearing Examiner’s explanation that Accountant was unfamiliar with Program
requirements and did not conduct her audit in a manner consistent with those
requirements. (Id. at 30-31; R.R. at 260b-62b.) Accountant, who was previously an
auditor for the City of Philadelphia, had never conducted a Program audit, although
she testified she did some online research about the Program and meal count claims
prior to reviewing the documents. (R.R. at 217b, 264b.) Accountant admitted that



                                         24
she was not familiar with the Program regulations and audits; nor was she
knowledgeable about food or nutrition programs. (Id. at 260b, 262b.) Accountant
stated that based upon her independent review of meal count sheets and Daycare’s
reimbursement claims, she could not determine which meals the Department found
unsupported nor how the Department reached its overpayment figure. (Id. at 231b-
32b, 240b-43b.) However, because Accountant also admitted she did not consider
any enrollment or application forms during the course of her review, which were
essential to determining Daycare’s compliance, it is evident that her calculation did
not conform with Program regulations. (Id. at 221b, 260b-62b.) Thus, while
Accountant was confident that none of the forms provided to her for review were
missing or inadequate, this is undermined by her testimony that she did not review
all the documents required by the regulations, as the Budget Office auditors had. (Id.
at 244b.)
      Despite Petitioners’ attempt to have us do so, we cannot reweigh Accountant’s
testimony about her independent calculation of the overpayment, which differed
from that of the Department. There is substantial evidence in the form of the
testimony of the Department’s witnesses to support the finding that the overpayment
amount was $504,758.56.        As previously explained, the testimony from the
Department witnesses established that the Budget Office auditors reviewed all
necessary documents, which revealed missing and incomplete enrollment and
eligibility forms that did not support all of the meals claimed during the relevant
time. (Id. at 135b-36b.) Further, the Full Performance Audit report, admitted as an
exhibit by the Hearing Examiner, details the difference between meals claimed and
meals verified by the documentation and supports the determination that the
Department paid to Daycare $504,758.56 for meals that lacked documentation and,



                                         25
therefore, could not be claimed. (See Transcript of Hearing with Exhibits, C.R. Item
No. 7, Department Ex. 1.) Considering the evidentiary weight determination made
by the Hearing Examiner and our review of the evidence, there is substantial
evidence to support the Hearing Examiner’s finding that Daycare over-claimed
$504,758.56 for which the Department must seek reimbursement. See Williams, 862
A.2d at 144.


   5. Whether Daycare was denied due process when it was not permitted to depose
      the Department’s auditor as a discovery tool.
      Petitioners contend that the Hearing Examiner deprived them of due process
by not granting their request to depose one of the Department’s auditors prior to the
administrative hearing. “[A]dministrative hearings do not authorize discovery,” but
Section 35.112 of GRAPP, 1 Pa. Code § 35.112, does allow parties to request the
use of discovery in pretrial hearings in order to expedite the proceeding. UGI Utils.,
Inc. v. Unemployment Comp. Bd. of Review, 851 A.2d 240, 251-52 (Pa. Cmwlth.
2004).    Nonetheless, “discovery matters are within a [hearing examiner’s]
discretion,” and we have held that GRAPP’s provisions “sufficiently provide notice,
and permit review of any evidence an agency will introduce at hearing. Thus, they
comport with the general principles of due process.” KC Equities v. Dep’t of Pub.
Welfare, 95 A.3d 918, 933 (Pa. Cmwlth. 2014).
      Petitioners cite to Section 35.112 of GRAPP and argue that its plain language
allows for depositions. Section 35.112(5) of GRAPP specifically provides: “[a]t a
prehearing or other conference which may be held to expedite the orderly conduct
and disposition of a hearing, there may be considered . . . the possibility of the
following: . . . (5) [t]he discovery or production of data.” 1 Pa. Code § 35.112(5).
In the “Order Denying Appellant’s Request to Take Deposition,” the Hearing


                                         26
Examiner acknowledged Section 35.112, as well as the general rule precluding
discovery in administrative proceedings. (R.R. at 81a-82a.) The Hearing Examiner
interpreted Section 35.112 and various other GRAPP provisions, finding that
depositions are generally disallowed in administrative hearings unless they are used
in lieu of live testimony. (Id. at 83a-84a.) See also Sections 35.145 and 35.151 of
GRAPP, 1 Pa. Code §§ 35.145 (allowing deposition of a witness prior to an
administrative hearing), 35.151 (relating to the use of a deposition as part of the
record in an administrative hearing).
      While it is true that depositions may be allowed in the circumstances
contemplated under Section 35.112, that section does not entitle a party to an
absolute right to discovery in administrative hearings. The Hearing Examiner did
not deprive Daycare of due process in denying its request to depose the Department’s
auditor as a discovery tool because Daycare did not have a right to such discovery
in this administrative proceeding. See KC Equities, 95 A.3d at 933 (finding no
violation of due process rights based on an administrative agency’s decision not to
compel discovery because the regulated entity did not have a right to discovery in
such proceedings).

   6. Whether the Termination Notice and individual disqualification against
      McClain is proper.
      Last, Petitioners assert that the Department did not prove that McClain is one
and the same with Daycare such that she can be individually disqualified under the
Termination Notice. Petitioners did not raise the issue of McClain’s individual
disqualification at any time before the Hearing Examiner but raise it for the first time
on appeal to this Court. Section 703(a) of the Administrative Agency Law, 2 Pa.
C.S. § 703(a), states that “[a] party who proceeded before a Commonwealth agency


                                          27
under the terms of a particular statute . . . may not raise upon appeal any other
question not raised before the agency.”        See also M.T., 56 A.3d at 10 n.12.
Petitioners did not raise the issue before the Hearing Examiner; therefore, we find
the issue waived.
      However, even if the issue was properly before us, we would not accept
Petitioners’ argument. Program regulations provide that when a hearing examiner
upholds a proposed termination and disqualification, the State agency must provide
notice “that the institution and the responsible principals and responsible
individuals have been disqualified.” 7 C.F.R. § 226.6(c)(3)(iii)(E)(1) (emphasis
added). Petitioners argue there is not substantial evidence to support a judgment
against McClain as an individual because the Department did not present evidence
that McClain was the “alter ego” of Daycare. (Petitioners’ Br. at 64.) However,
Petitioners misstate the standard for individual disqualification under the Program
regulations.      Those regulations define “[r]esponsible principal or responsible
individual” as:

      (a) A principal, whether compensated or uncompensated, who the
      [s]tate agency or FNS determines to be responsible for an institution’s
      serious deficiency;

      (b) Any other individual employed by, or under contract with, an
      institution or sponsored center, who the [s]tate agency or FNS
      determines to be responsible for an institution’s serious deficiency; or

      (c) An uncompensated individual who the [s]tate agency or FNS
      determines to be responsible for an institution’s serious deficiency.

7 C.F.R. § 226.2. As testified to by Daycare Director, McClain is the owner of
Daycare. (R.R. at 142b.) This is further evidenced by Daycare’s July 2012 CAP,
which McClain signed as “owner,” and the letter the Department sent to confirm



                                          28
receipt of that CAP, which was addressed the same. (Id. at 45a.) Moreover, the
CAP contained an acknowledgment by McClain, as an authorized official of
Daycare, that the consequence of not undertaking corrective action would result in
serious deficiency procedures against her. (Transcript of Hearing with Exhibits,
C.R. Item No. 7, Petitioners’ Ex. A26, at 140.) Finally, the Termination Notice
specifically stated that McClain is a responsible principal for Daycare’s deficiencies.
(FOF ¶ 79.) As owner of Daycare, who has acknowledged and been informed of her
responsibilities for Daycare’s deficiencies on various occasions, McClain is a
responsible principal or individual, and the regulations mandate her individual
disqualification. 7 C.F.R. § 226.6(c)(3)(iii)(E)(1).


   VI.    Conclusion
      The Department’s Termination Notice and recovery of overpayment is not
barred by the equitable doctrines of laches and estoppel. Further, based on the
Hearing Examiner’s evidentiary weight determinations, there is substantial evidence
to support the Hearing Examiner’s findings of fact, which, in turn, support the
dismissal of Petitioners’ appeal from the Termination Notice, allowing the
Department to proceed in recovering the overpayment, terminating Daycare’s
contract, and disqualifying Daycare and McClain from future participation in the
Program. Moreover, we discern no error of law or constitutional violations in the
Determination. Accordingly, we affirm.


                                        _____________________________________
                                        RENÉE COHN JUBELIRER, Judge




                                          29
        IN THE COMMONWEALTH COURT OF PENNSYLVANIA


JoeAnna McClain, d/b/a, Nana’s           :
Daycare and JoeAnna McClain,             :
individually and Nana’s Daycare,         :
LLC,                                     :
                         Petitioners     :
                                         :
                   v.                    :   No. 1656 C.D. 2017
                                         :
Pennsylvania Department of               :
Education, Division of Food and          :
Nutrition,                               :
                         Respondent      :


                                   ORDER


      NOW, January 3, 2019, the September 18, 2017 Order of the Hearing
Examiner of the Pennsylvania Department of Education is AFFIRMED.



                                       _____________________________________
                                       RENÉE COHN JUBELIRER, Judge
