        TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN


                                        NO. 03-01-00329-CV


                Park Haven, Inc. d/b/a Park Haven Healthcare Center, Appellant

                                                    v.

                          Texas Department of Human Services, Appellee



       FROM THE DISTRICT COURT OF TRAVIS COUNTY, 126TH JUDICIAL DISTRICT
           NO. 99-11139, HONORABLE W. JEANNE MEURER, JUDGE PRESIDING



                Appellant Park Haven, Inc. d/b/a Park Haven Healthcare Center (APark Haven@)

appeals from a district-court judgment upholding a final order of appellee Texas Department of

Human Services (ATDHS@). TDHS assessed $98,400 in penalties against Park Haven for violations of

TDHS rules. See 40 Tex. Admin. Code '' 19.901, .1601(1)(A) (2002) (Tex. Dep=t of Human

Servs.).1 On appeal, Park Haven contends that (1) the agency=s order is not supported by substantial

evidence and (2) the agency=s failure to follow a statutory mandate renders an agency rule invalid.

Because we agree that there is not substantial evidence in the record to show that TDHS considered

Park Haven=s history of compliance in assessing penalties, we will reverse the judgment of the district

court and remand the cause for further proceedings.


                      FACTUAL AND PROCEDURAL BACKGROUND

   1
      A previous version of the administrative code was in effect at the time of Park Haven=s administrative
hearing. We will cite to the current version of the code for convenience except where the current version
deviates substantively from the previous version.
                Park Haven is a nursing-home facility located in Bridgeport. Over a period of six days

in April 1998, TDHS conducted an inspection and investigation of Park Haven. See id. ' 19.2002

(providing for unannounced visit by TDHS survey team Afor the purpose of determining

appropriateness of resident care and day-to-day operations@ of facilities). Based on its investigation,

TDHS assessed penalties in the amount of $50,400 for quality-of-care violations, 2 see id. ' 19.901,

and $48,000 for infection-control violations, 3 see id. ' 19.1601(1)(A). Generally, a violator is allowed

to correct its deficiencies and thus avoid administrative penalties. See id. ' 19.2114. TDHS,

however, found that there was a serious threat to the health and safety of at least one Park Haven

resident, an exception to the correction-and-avoidance rule. See id. ' 19.2114(d)(1)(B). Park Haven

was thus denied the opportunity to correct the deficiencies and avoid the penalties. Upon receiving

notice that TDHS was assessing administrative penalties, Park Haven requested a hearing. See 23

Tex. Reg. 4920 (1998), repealed by 25 Tex. Reg. 391, proposed 24 Tex. Reg. 9977, adopted 25 Tex.

Reg. 391 (2000) (former 40 Tex. Admin. Code ' 79.1604 (Tex. Dep=t of Human Servs.)).4



   2
      The total amount of penalties under this section was derived by assessing $2,100 per day for the
period of April 27 through May 20, 1998. Penalties were assessed for each day from the date of the
survey team=s exit until the date the violation was corrected as alleged by the facility=s plan of correction.
See 23 Tex. Reg. 1314 (1998) (amended 2001) (current version at 40 Tex. Admin. Code ' 19.2112(f)
(2002) (Tex. Dep=t of Human Servs.)).
   3
      The total amount of penalties under this section was derived by assessing $2,000 per day for the
period of April 27 through May 20, 1998. Penalties were assessed for each day from the date of the
survey team=s exit until the date the violation was corrected as alleged by the facility=s plan of correction.
See id.
   4
     Sections 79.1601-.1613 were repealed and replaced by new sections 79.1601-.1607, which
became effective in January 2000. Before the change, and at the time of the hearing giving rise to this

                                                      2
Following the hearing, a TDHS administrative law judge (AALJ@) issued a final decision and order,

including findings of fact and conclusions of law, sustaining the penalties. See id. (former ' 79.161(a)-

(b), (k)) (final decision must include findings of fact and conclusions of law and ALJ enters all orders

necessary to implement final decision). Park Haven unsuccessfully moved for rehearing, then sought

judicial review in district court. See id. (former ' 79.1613); Tex. Health & Safety Code Ann. '

242.069(b)(2) (West 2001). The district court upheld TDHS=s decision. Park Haven appeals by four

issues: (1) TDHS violated the Administrative Procedure Act by failing to follow the statutory

mandate to establish gradations of penalties;5 (2) no substantial evidence existed to indicate that

TDHS followed its own regulations governing determination of administrative penalties; (3) no

substantial evidence supported determination of a $2,000 per day fine for alleged violations of section

19.1601; and (4) TDHS=s denial of Park Haven=s right to correct was not supported by substantial

evidence.


                                             DISCUSSION




appeal, TDHS=s hearings department heard contested TDHS cases. Since January 2000, those cases are
heard by a State Office of Administrative Hearings administrative law judge. See 24 Tex. Reg. 9977
(1999).
   5
       The health and safety code requires the board to Aestablish gradations of penalties in accordance with
the relative seriousness of the violation.@ Tex. Health & Safety Code Ann. ' 242.066(d) (West 2001).




                                                     3
               By its second issue, Park Haven argues that there was not substantial evidence to

support the finding by the ALJ that TDHS had considered mandatory criteria in determining the

penalties. A court reviewing a final agency order may not substitute its judgment for that of the

agency, but Ashall reverse or remand the case for further proceedings@ if the agency=s order is not

supported by substantial evidence, considering the reliable and probative evidence in the record as a

whole. Tex. Gov=t Code Ann. ' 2001.174 (West 2000). To ascertain whether an agency=s decision

is supported by substantial evidence, we determine whether, in considering the record upon which

the decision is based, the evidence as a whole is such that reasonable minds could have reached the

conclusion that the agency must have reached in order to justify its action. See Lone Star Salt Water

Disposal Co. v. Railroad Comm=n, 800 S.W.2d 924, 928 (Tex. App.CAustin 1990, no writ). In

making such determination, the reviewing court may not substitute its judgment for the agency=s, and

must consider only the record upon which the decision is based. Id. The evidence in the agency

record may actually preponderate against the agency=s decision, but still constitute substantial

evidence supporting it. Id. The burden is on the complaining party to demonstrate an absence of

substantial evidence. Id.




                                                 4
                TDHS=s assessment of an administrative penalty against a nursing facility is a two-step

process. TDHS first applies the criteria found in its rules to determine whether to assess a penalty for a

particular violation. 40 Tex. Admin. Code ' 19.2112(d). If TDHS determines that a penalty should

be imposed, it must then apply statutory criteria to determine the amount of the penalty to be assessed.

Tex. Health & Safety Code Ann. ' 242.066(e).6 TDHS has by rule established criteria to be used in

determining whether to assess an administrative penalty:


        (d) In determining whether a violation warrants an administrative penalty, DHS considers
            the facility=s history of compliance and whether:

             (1) a pattern or trend of violations exists; or

             (2) the violation is recurrent in nature and type; or

             (3) the violation presents danger to the health and safety of at least one resident; or

             (4) the violation is of a magnitude or nature that constitutes a health and safety
                 hazard having a direct or imminent adverse effect on resident health, safety, or
                 security, or which presents even more serious danger or harm; or

             (5) the violation is of a type established elsewhere in DHS=s rules concerning
                 licensing standards for long term care facilities.




   6
       These criteria are also found in the administrative code. See 40 Tex. Admin. Code ' 19.2112(e).



                                                     5
40 Tex. Admin. Code ' 19.2112(d) (emphasis added).7

                 An agency=s reasonable interpretation of its own rules is often entitled to deference by the

courts. See Public Util. Comm=n v. Gulf States Utils. Co., 809 S.W.2d 201, 207 (Tex. 1991); Sharp

v. International Bus. Machs. Corp., 927 S.W.2d 790, 793 (Tex. App.CAustin 1996, writ denied). The

reviewing court determines whether the administrative interpretation Ais plainly erroneous or inconsistent with

the regulation.@ See Gulf States Utils., 809 S.W.2d at 207 (citing United States v. Larionoff, 431 U.S.

864, 872 (1977)). If the agency=s decision is not supported by substantial evidence, it is deemed arbitrary

and capricious. Texas Health Facilities Comm=n v. Charter Medical-Dallas, Inc., 665 S.W.2d 446,

454 (Tex. 1984).




   7
     This rule was promulgated under the statutory authority granted TDHS by the health and safety code.
See Tex. Health & Safety Code Ann. ' 242.001.




                                                                    6
                The first factor to be considered by TDHS in assessing an administrative penalty is the

Afacility=s history of compliance.@ A plain reading of the rule suggests that this is a threshold factor. To

demonstrate that it considered Park Haven=s compliance history, TDHS sought to introduce, before the

ALJ, evidence in the form of OSCAR8 reports. However, the ALJ excluded the evidence because TDHS

had not produced underlying surveys and reports that corresponded to the OSCAR summaries in response

to a Park Haven discovery request. TDHS argues that there was still evidence in the form of Anon-specific

testimony@ to support the ALJ=s findings and cites the testimony of one of its employees involved in the Park

Haven investigation:


        Q: [W]hat are some of the documents that the enforcement committee relies on when
           they are reviewing a survey?

        A: Well we are presented with a three-year history of visits and then a two-year history
           of punitive actions against the facility. And then this is read to us by the program
           manager. The whole 2567 is read to us by the program manager.


This testimony is no more than a general description of what usually occurs in the assessment process. It

does not demonstrate whether the procedure was followed in Park Haven=s case. This is the only testimony

to which TDHS points in support of its contention that evidence of Park Haven=s history of compliance was

before the ALJ. A review of the administrative record reveals no other testimony or evidence that could

   8
      OSCAR is an acronym for AOnline Survey Certification and Reporting@ system. It is a federal online
database containing certification and survey data concerning Medicaid-certified nursing-home facilities. It
includes any deficiencies that have been cited against a facility.




                                                     7
have enabled the ALJ, as fact finder, to determine that Park Haven=s history of compliance was considered

in assessing the administrative penalties. Park Haven has met its burden in demonstrating the absence of

substantial evidence on the threshold issue of Park Haven=s history of compliance. Therefore, we hold that

the ALJ=s order was arbitrary and capricious and that the district court erred in upholding the ALJ=s order.

We sustain Park Haven=s second issue.

                 Because we hold that there was not substantial evidence to show that TDHS properly

assessed penalties against Park Haven, we need not consider Park Haven=s other issues. See Tex. R. App.

P. 47.1.


                                             CONCLUSION

                 We reverse the district-court judgment upholding TDHS=s decision and remand to the

district court with instructions that this cause be remanded to TDHS for further proceedings not inconsistent

with this opinion.




                                                  Lee Yeakel, Justice

Before Justices Kidd, Yeakel and Patterson

Reversed and Remanded

Filed: June 13, 2002

Publish

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