                    IN THE COURT OF APPEALS OF IOWA

                                   No. 16-0163
                               Filed March 8, 2017


FOUR OAKS FAMILY AND CHILDREN'S SERVICES and TIM CART,
     Plaintiffs-Appellees,

vs.

IOWA DEPARTMENT OF EDUCATION, BUREAU OF NUTRITION AND
HEALTH SERVICES,
     Defendant-Appellant.
________________________________________________________________


      Appeal from the Iowa District Court for Linn County, Christopher L. Bruns,

Judge.



      An administrative agency appeals the district court’s decision on judicial

review. REVERSED.




      Thomas J. Miller, Attorney General, and Meghan L. Gavin, Assistant

Attorney General, for appellant.

      Nancy J. Penner and Steven J. Pace of Shuttleworth & Ingersoll, P.L.C.,

Cedar Rapids, for appellees.



      Heard by Danilson, C.J., and Vogel and Vaitheswaran, JJ.
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VOGEL, Judge.

       The Iowa Department of Education and its Bureau of Nutrition and Health

Services (the Department) claim the district court erred in its judicial review

decision reversing the Department’s decision to pursue termination of Four Oaks

Family and Children Services’ (Four Oaks) participation in the Child and Adult

Care Food Program (the CACFP) and to place Four Oaks on the national

disqualified list. Because we agree that federal law allowed the Department to

terminate Four Oaks’s participation in the CACFP and place it on the national

disqualified list, we reverse the district court’s judicial-review decision.

       I.     Background Facts and Proceedings

       Four Oaks is a nonprofit organization that offers services related to child

welfare and juvenile justice, such as afterschool childcare and other community-

based prevention programs.         Four Oaks participates in the CACFP, which

reimburses daycare providers for meals and snacks given to children and adults.

The CACFP was created by the Federal Agricultural Risk Protection Act and is

administered in Iowa by the Department.

       Four Oaks operates two facilities that participate in the CACFP, one in

Cedar Rapids and one in Iowa City.             On August 30, 2012, the Department

conducted an unannounced visit at Four Oaks’s Cedar Rapids facility.           The

Department employee who conducted the review noted several issues and

discussed them with Tim Cart, the Four Oaks employee responsible for

managing the program. On September 27, 2012, the Department initiated an

administrative review of Four Oaks’s CACFP records.             On October 11, Four
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Oaks emailed the Department and voluntarily terminated its participation in the

CACFP program at the Cedar Rapids facility retroactive to August 31.

       On October 25, the Department issued a citation to Four Oaks, which

cited “serious deficiencies” with Four Oaks’s participation in the CACFP,

including: failure to operate the program in conformance with the performance

standards set forth in paragraph (b)(18)(iii) of the program accountability section

of the agreement; failure to maintain program operations that met CACFP

requirements following staff turnover; failure to maintain fiscal integrity and

accountability under 7 C.F.R. section 226.15(e) and failure to process claims

accurately; failure to maintain adequate records; and failure to provide adequate

and regular training or monitor sponsored facilities in accordance with section

226.16(d) of the agreement.1        The citation directed Four Oaks to complete

corrective actions within one month or risk being terminated from the program

and placed on the national disqualified list. Four Oaks did not complete the

necessary corrective actions, claiming it was unable to do so because it was no

longer participating in the CACFP. On December 7, the Department proposed

termination of Four Oaks’s ability to participate in the CACFP and disqualification

from future participation by placement on the national disqualification list.

       On January 29, 2013, Four Oaks filed its appeal of the Department’s

decision. Four Oaks argued the Department’s decision was improper because it

had already voluntarily terminated its participation in the CACFP in an October




1
 After the citation was issued, Four Oaks voluntarily terminated its participation in the
CACFP Program at the Iowa City facility retroactive to September 30, 2012.
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11 email, prior to the Department’s formal notice of deficiency on October 25.

Following a contested hearing, an administrative law judge (ALJ), determined:

       The evidence presented here amply supports a finding that Four
       Oaks was seriously deficient in the management of the CACFP
       program and further that Four Oaks failed to attempt to correct the
       serious deficient practices with which it was cited during the site
       visit on August 31, 2012, and the administrative review on
       September 27, 2012.

In response to Four Oaks’s argument it voluntarily terminated its participation

prior to the Department’s notice, the ALJ held:

       The undersigned understands that Four Oaks has taken the
       position that it voluntarily decided to terminate its participation in the
       CACFP program. However, this decision to terminate only came
       about after the August 30, 2012, site visit where several serious
       deficiencies in the program were already noted. Only compounding
       the issue is the fact that Four Oaks claimed meals through August
       31, 2012. Four Oaks is accountable for the operation of this
       program through August 31, 2012.

Ultimately, the ALJ upheld the Department’s decision.

       Four Oaks then sought judicial review of the Department’s decision in

district court. On February 14, 2013, the district court reversed the decision of

the Department. Initially, the court determined Four Oaks had terminated its

participation in the CACFP prior to the Department issuing the citation of serious

deficiencies. The court then turned to whether the applicable federal regulations

allowed the Department to pursue termination of Four Oaks’s participation in the

program when Four Oaks had voluntarily terminated its participation prior to

receiving the citation for serious deficiency. The court looked to the text of 7

C.F.R. section 226.6(c)(3)(iii)(A)(6):

       That the institution’s voluntary termination of its agreement with the
       State agency after having been notified that it is seriously deficient
       will still result in the institution’s formal termination by the State
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      agency and placement of the institution and its responsible
      principals and responsible individuals on the [n]ational disqualified
      list.

(Emphasis added.) Based on the emphasized language, the court reasoned:

“The [United States Department of Agriculture’s (USDA)] choice to include this

language in the regulation reflects USDA’s intent to allow formal termination and

placement on the [n]ational [d]isqualified [l]ist only when the termination follows

receipt of a notice of serious deficiency.” Accordingly, the court reversed the

Department’s decision and ordered it to rescind the formal termination of Four

Oaks’s participation in the CACFP and remove Four Oaks from the national

disqualified list. The Department appeals.

      II.    Standard of Review

      When reviewing a district court’s review of an agency decision, the

“standard of review depends on the aspect of the agency’s decision that forms

the basis of the petition for judicial review.” Burton v. Hilltop Care Ctr., 813

N.W.2d 250, 256 (Iowa 2012). When the petition claims the agency’s decision

was “[b]ased upon an erroneous interpretation of a provision of law whose

interpretation has not clearly been vested by a provision of law in the discretion

of the agency,” we review the decision for errors at law.             Iowa Code

§ 17A.19(10)(c) (2016); Meyer v. IBP, Inc., 710 N.W.2d 213, 219 (Iowa 2006).

      III.   Interpretation of Federal Law

      Both parties agree the outcome of this case depends on the interpretation

of the federal regulatory scheme that governs the CACFP.         The Department

argues federal law allows, and what is more requires, it to seek formal

termination of an institution’s agreement to participate in the CACFP when the
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Department determines serious deficiencies existed and were not corrected.

Four Oaks offers a different interpretation of the applicable federal law, claiming

the regulations preclude the Department from seeking formal termination when

an institution has voluntarily terminated its participation prior to written notice of

serious deficiencies.

       When interpreting federal law, we give consideration to federal decisions,

but we have the authority to decide the issue on our own interpretation of federal

law. Top of Iowa Coop. v. Sime Farms, Inc., 608 N.W.2d 454, 460 (Iowa 2000).

In interpreting a statute, our primary goal is to determine the intention of the

legislature.   Gardin v. Long Beach Mortg., Co., 661 N.W.2d 193, 197 (Iowa

2003). When the language of the statute is plain and unambiguous, we look no

further. Id. We read statutes and statutory schemes as a whole and seek to give

them their “plain and obvious meaning, a sensible and logical construction.”

Hamilton v. City of Urbandale, 291 N.W.2d 15, 17 (Iowa 1980). “Additionally, we

do not construe a statute in such a way that would produce impractical or absurd

results.” Gardin, 661 N.W.2d at 197. Further, “when a literal interpretation of a

statute results in absurd consequences that undermine the clear purpose of the

statute, an ambiguity arises.” Sherwin-Williams Co. v. Iowa Dep’t of Revenue,

789 N.W.2d 417, 427 n.8 (Iowa 2010).

       The CACFP was created by 42 U.S.C. § 1766. The program is overseen,

on a federal level, by the USDA, which is tasked with establishing criteria for the

termination of an institution’s participation in the CACFP.               42 U.S.C.

§ 1766(a)(1)(B), (d)(1)(E)(iii).   The USDA accomplishes that task partially by

promulgating regulations in the Code of Federal Regulations (the C.F.R.).
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       Both parties argue we should accept their interpretation of the regulations’

impact on the issue raised in this appeal. In asserting the regulations governing

administration of the CACFP required it to seek termination and placement on

the national disqualified list, the Department relies on 7 C.F.R. section

226.6(c)(3)(i):

       If the State agency determines that a participating institution has
       committed one or more serious deficiency listed in paragraph
       (c)(3)(ii) of this section, the State agency must initiate action to
       terminate the agreement of a participating institution and initiate
       action to disqualify the institution and any responsible principals
       and responsible individuals.

In response, Four Oaks notes that by the time the serious deficiencies were

officially “determined” they were no longer a participating institution and urges

this court to follow the district court’s reasoning relying on the previously quoted

portion of 7 C.F.R. section 226.6(c)(3)(iii)(A)(6).

       Upon our review of the applicable federal laws and regulations, we are

persuaded the Department’s interpretation is the correct interpretation. We find

the language of 7 C.F.R. section 226.6(c)(3)(i) required the Department to initiate

the process of terminating Four Oaks’s agreement if it determined Four Oaks

committed serious deficiencies and failed to correct them. That process began

with the site visit by the Department employee on August 30, 2012, when Four

Oaks was undisputedly still participating in the CACFP. It continued with the

initiation of an administrative review on September 27 and a notice of serious

deficiency on October 25.

       Four Oaks asserts the time gap between the initial visit and the formal

notice gave them a window to voluntarily terminate the agreement and avoid
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formal termination and placement on the national disqualified list. We find this

interpretation inconsistent with the regulatory scheme as a whole and that such a

reading would lead to an absurd result.         We do not read the applicable

regulations to be so rigid as to require the Department to become aware of

potential serious deficiencies, investigate them, and make a determination in a

manner quick enough to ensure that institutions and individuals that have

committed serious deficiencies cannot avoid the appropriate penalties simply by

voluntarily terminating their agreement. See Goldstar Med. Servs., Inc. v. Dep’t

of Social Servs., 955 A.2d 15, 26 (Conn. 2008) (“The plaintiffs’ contention that a

provider can place itself beyond the reach of these strong statutory sanctions and

provisions simply by terminating its provider agreement on thirty days notice,

defies logic and requires a construction of the statute that thwarts its intended

purpose, and leads to an absurd result.”).

      7 C.F.R. section 226.6(c)(3)(iii)(A) requires a notice of serious deficiency

to “identify the responsible principals and responsible individuals,” provide notice

of corrective actions to be take, if applicable, as well as provide notice of seven

other facts relevant to the determination and review process. Preparation of

such a notice could only follow a thorough investigation—a preferable procedure

than a rush to judgment. It strikes us as absurd that institutions and individuals

could thwart the investigation process and appropriate penalty simply by

voluntarily terminating their agreement once they discover they are under

investigation but before official notice of a final determination was provided.

Such a reading of the applicable law could lead to inspections being hurriedly

memorialized in an effort to beat a defensive move by the violating institution.
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See id. (“If the plaintiffs’ interpretation of § 17b–99 (c) were to prevail, a provider

could insulate itself from any sanction at all, even an order for restitution, simply

by terminating the provider agreement as soon as it receives notice that an audit

is to be conducted. As the trial court noted, the provider could ‘simply jump in

and out of the program upon discovery of impropriety.’ We cannot conclude that

our legislature could have intended to permit a result so incongruous with the

clear intention of § 17b–99 (c).”). Here, August 30 was the date of the observed

violations, and to the Department’s credit, those violations were first discussed

with a Four Oaks employee and then carefully considered before a formal

determination was made, warranting a notice of deficiency.

       The district court agreed with Four Oaks’s argument that its interpretation

is supported by 7 C.F.R. section 226.6(c)(3)(iii)(A)(6), which requires the

Department to inform an institution in its notice of deficiency that voluntary

termination after receiving the notice will not prevent formal termination and

placement on the national disqualified list. Four Oaks urges that the explicit

reference to voluntary termination after notice implies that voluntary termination

before notice does prevent the process from continuing. We disagree with Four

Oaks’s reasoning based on the context of the particular provision.           7 C.F.R.

section 226.6(c)(3)(iii)(A)(6) appears in the list of notices that must be provided

with the serious deficiency determination and, hence, is not particularly

enlightening to the pre-determination context. See 7 C.F.R. § 226.6(c)(3)(iii)(A).

We do not agree that this provision implies an institution or an individual may

stop the investigation of potential serious deficiencies by voluntary termination

when they have not yet received the formal notice. Accordingly, we reject the
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district court’s and Four Oaks’s interpretation of the federal law and regulations

applicable to the Department’s termination of Four Oaks’s participation in the

CACFP and the Department’s placement of Four Oaks on the national

disqualified list.

       IV.     Conclusion

       Because we agree with the Department that federal law allowed it to

terminate Four Oaks’s participation in the CACFP and place it on the national

disqualified list, we reverse the district court’s judicial-review decision.

       REVERSED.
