Opinion
C083492
10-29-2019
KEITH BRACEWELL et al., Plaintiffs and Appellants, v. CALIFORNIA DEPARTMENT OF PUBLIC HEALTH et al., Defendants and Respondents.
ORDER MODIFYING OPINION AND DENYING REHEARING [NO CHANGE IN JUDGMENT] THE COURT:
It is ordered that the opinion filed in this case on October 29, 2019, be modified as follows:
On page 7, third full paragraph, remove the following sentence: "Although the trial court granted the Bracewells' request for a writ commanding respondents to vacate the administrative decision that became effective on September 4, 2009, the remand was limited to reconsideration of the amount the Bracewells needed to repay." Replace with the following:
"Although the trial court granted the Bracewells' request for a writ commanding respondents to vacate the administrative decision that became effective on September 4, 2009, the remand was limited to reconsideration of the amount the Bracewells needed to repay and whether the findings about the amount of actual over-reimbursement would have any implication on the Department's actions against the Bracewells."
This modification does not change the judgment.
The petition for rehearing is denied. FOR THE COURT: /S/_________
HULL, Acting P. J. /S/_________
MAURO, J. /S/_________
HOCH, J. NOT TO BE PUBLISHED California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 34-2009-80000341-CU-WM-GDS)
The Special Supplemental Nutrition Program for Women, Infants and Children (the WIC program) provides supplemental nutrition to pregnant and postpartum mothers and their children up to the age of five. The California Department of Public Health (Department) had a predecessor that contracted with Keith and Grace Bracewell to provide supplemental food to participants with WIC food vouchers. However, an audit of two retail stores owned by the Bracewells found they had violated their contract and had been reimbursed too much. The trial court entered judgment in 2011 and issued a further order in 2016 upholding the disqualification of the Bracewells' stores from participation in the WIC program and an administrative order to repay the Department $11,231.
The Bracewells now contend (1) the two stores should not have been audited as separate vendors or required to maintain records showing inter-store transfers of food products, (2) it was improper to disqualify the stores, and (3) there is insufficient evidence that the stores were over-reimbursed by $11,231.
We conclude (1) the challenge to the separate audits and store records requirement are foreclosed because the Bracewells did not timely appeal the 2011 judgment, (2) the decision to disqualify the stores was not erroneous, and (3) the challenge to the sufficiency of the evidence is also barred by the failure to timely appeal a 2015 order. We will affirm the trial court's 2016 order.
BACKGROUND
Congress enacted the federal Child Nutrition Act of 1966 (42 U.S.C. § 1771 et seq.), which established the WIC program. (42 U.S.C. § 1786.) The Department administers the program in this State in accordance with federal WIC requirements and guidelines. (Health & Safety Code, §§ 20, 123280.) The Department contracts with retail food vendors to provide supplemental food under the program. (Health & Safety Code, § 123310.) Vouchers or food instruments issued to eligible program participants are redeemed for WIC-approved food products at authorized food vendors, and the vendors submit the vouchers to the State for reimbursement. Only authorized food vendors may accept WIC food vouchers. (Cal. Code Regs., tit. 22, § 40735, subd. (a).) Each retail outlet location must be authorized separately under the program. (Cal. Code Regs., tit. 22, § 40735, subd. (a).) In addition, authorized vendors must comply with the Department's "rules of vendor authorization, reimbursement, and monitoring that control program food costs, maximize participant access, and ensure program integrity." (Health & Safety Code, § 123315, subd. (a)(8).)
The Bracewells owned and operated two food stores, Basic Foods and Basic Foods #3, in Bakersfield. The stores were approved food vendors participating in the WIC program.
A food vendor must execute a vendor agreement with the Department to be entitled to reimbursement for food vouchers. (Cal. Code Regs., tit. 22, §§ 40735, subd. (a), 40739; 7 C.F.R. § 246.12, subd. (h)(1).) In 2006, the Bracewells entered into a vendor agreement with the predecessor to the Department. Pursuant to that agreement, the Bracewells agreed to comply with all federal and state laws, regulations and rules governing the WIC program. Consistent with state law, the agreement required "the food vendor" to "[m]aintain, for a period of three years, records including but not limited to: all inventory records necessary for Federal and State tax reporting purposes, inventory records showing all wholesale and retail purchases; invoices identifying the quantity and prices of specific supplemental foods; sales and use tax returns, and books of account and other pertinent records that are necessary to substantiate the volume and prices charged through food instrument redemption." (See Health & Safety Code, § 123315, subd. (a)(6); Cal. Code Regs., tit. 22, § 40735, subd. (a).) The agreement further provided that the State reserved the right to audit a food vendor's records and books of account for compliance with the agreement and to disqualify the food vendor from participation in the program if it is determined that the vendor failed to comply with the agreement or has committed violations subject to disqualification under 7 Code of Federal Regulations part 246 and California Code of Regulations, title 22, section 40740. Although they were included in one vendor agreement, Basic Foods and Basic Foods #3 each had its own vendor identification number. Moreover, the vendor agreement provided that each store location was authorized separately.
In 2008, the State Controller's Office audited the records of Basic Foods and Basic Foods #3 for the period January 1, 2006 to December 31, 2006. The Department issued separate notices of audit findings and disqualification to Basic Foods and Basic Foods #3, finding each store had been reimbursed in excess of eligible costs by more than 20 percent of the total food voucher dollars redeemed. The stores were disqualified from the program for three years pursuant to 7 Code of Federal Regulation section 246.12, subdivision (l)(1)(iii)(B) and California Code of Regulations, title 22, section 40740, subdivision (e)(2)(C). The Bracewells were required to repay $125,099 for Basic Foods and $136,357 for Basic Foods #3.
The Bracewells filed separate appeals for each store and requested a hearing. Administrative Law Judge (ALJ) Dwight Nelsen heard the matter and issued a proposed decision denying the appeals. The Bracewells argued the two stores should be treated as a single unit for auditing purposes because they were treated as one entity for federal tax purposes, but the ALJ rejected the argument. He said the vendors' participation in the program was based on contract and the vendor agreement provided that each store was authorized separately, and the auditor followed applicable procedures which required that each store be audited separately. He concluded that combining the two stores as one was inconsistent with accepted auditing standards and procedures of WIC stores and the vendors' operations.
With respect to the inventory each store had for sale during the audit period, ALJ Nelsen said there should be a paper trail substantiating the amount and value of the food products each store received for sale to WIC beneficiaries. However, each store did not have a contemporaneous paper trail to verify what it received from the other store in the form of transfers of food products. He found that the vendor's records for Basic Foods showed that the volume of WIC food sales for five food items was unsupported in the amount of $125,099, and the vendor's records for Basic Foods #3 showed that the volume of WIC food sales for 24 food items was unsupported in the amount of $136,357.
The ALJ also rejected the Bracewells' argument that they were not informed of the need for maintaining transfer records. He said it was reasonable to expect each store to be able to show "auditable documentation [of] the volume and value of the products it had for sale." And the need for documentation of transferred food products should be the same as for products from outside wholesalers. The ALJ concluded that disqualification was appropriate because the audit of each store showed the vendor was reimbursed in an amount in excess of eligible costs. The Department adopted the ALJ's proposed decision.
The Bracewells filed a petition for reconsideration, which was denied. The Bracewells then filed a petition for writ of mandate in the superior court to compel respondents ALJ Nelsen, Chief ALJ Dan Colson, and the Department (collectively respondents) to vacate the Department's final decision and to issue a new decision granting their appeals. The trial court granted the writ petition in part and denied it in part. While the trial court agreed that the Bracewells were required to maintain records reflecting transfers of goods between the two stores as part of the WIC program's recordkeeping requirements, it said the evidence presented indicated there may not have been an over-reimbursement when transfers between the two stores were taken into consideration. The trial court issued a peremptory writ, remanding the matter for reconsideration as to the amount the Bracewells were required to repay the Department. The trial court denied the Bracewells' motion for reconsideration.
On November 9, 2011, the trial court entered judgment and Keith Bracewell filed notice of entry of judgment. About five weeks later, the Bracewells filed a writ petition in this Court, which this Court denied because the Bracewells had a remedy by appeal. The Bracewells did not file a timely notice of appeal concerning the November 9, 2011 judgment.
On remand, the Department vacated its decision. ALJ Mark Otto ultimately submitted a proposed decision concluding that the vendors must reimburse the Department $11,231; certified public accountant Denny Bridges concluded the combined net unsupported redemption amount for the two stores was $11,231, and the Department did not present evidence of the monetary loss it suffered and did not dispute the amounts Mr. Bridges used in his calculations. The Department adopted the ALJ's proposed decision and issued its final decision.
The trial court did not discharge the peremptory writ. It agreed with the Bracewells that, if the Bracewells owed only $11,231 and not $261,456, ALJ Otto needed to determine whether the disqualification should be modified. On remand, ALJ Otto declined to modify the disqualification, and the Department adopted the decision. Although the Bracewells asserted further objections in the trial court, the trial court overruled the objections, discharged the peremptory writ and dismissed the matter on September 21, 2016. The Department filed a notice of entry of that order and the Bracewells filed a notice of appeal within 60 days thereafter.
DISCUSSION
I
The Bracewells maintain that it was error to audit Basic Foods and Basic Foods #3 separately and to require them to maintain records showing inter-store transfers of food products. The Department responds that it is too late to assert those claims because those matters were addressed in the trial court's September 17, 2010 order and the Bracewells did not timely appeal from the resulting judgment.
"[A] judgment is final, and therefore appealable, ' " 'when it terminates the litigation between the parties on the merits of the case and leaves nothing to be done but to enforce by execution what has been determined.' " ' " (Dhillon v. John Muir Health (2017) 2 Cal.5th 1109, 1115.) We examine the substance and effect of the adjudication and the circumstances of the case to determine whether a decree is final. (Id. at pp. 1115- 1116.) "That there are additional proceedings involving the return on the [peremptory] writ does not change the finality of the judgment issuing the writ." (Los Angeles International Charter High School v. Los Angeles Unified School Dist. (2012) 209 Cal.App.4th 1348, 1354-1355.)
The Bracewells' petition for writ of mandate challenged the ruling that Basic Foods and Basic Foods #3 had to be audited separately. The petition also assigned error to the Department's rejection of "commonly accepted accounting practices of stores owned by a common sole proprietor whereby food items may be purchased in excess of sales at one store and transferred to the other store for sale." It alleged that it was error to require vendors to maintain transfer documents and that the disqualification of Basic Foods and Basic Foods #3 was based on the Department's improper requirement of transfer documents. In addition, the petition alleged that when considered together, the invoices for Basic Foods and Basic Foods #3 showed the stores were over-reimbursed only one-half of one percent of the total food voucher redemptions for the two stores.
The trial court entered a judgment granting in part and denying in part the Bracewells' writ petition. Based on its substance and effect, that judgment is a final judgment for purposes of appeal. In fact, the Bracewells acknowledged in the writ petition they filed in this Court on February 3, 2012, that the trial court's September 17, 2010 order, upon which the November 9, 2011 judgment is based, is a final judgment.
Although the trial court granted the Bracewells' request for a writ commanding respondents to vacate the administrative decision that became effective on September 4, 2009, the remand was limited to reconsideration of the amount the Bracewells needed to repay. The trial court specifically rejected the claims that it was error to audit Basic Foods and Basic Foods #3 separately and to require the Bracewells to maintain transfer documents. The trial court reserved jurisdiction to determine whether respondents complied with the writ but did not defer ruling on any issue presented in the petition.
The Bracewells had to timely appeal from the November 9, 2011 judgment or lose the right to challenge it. (Cal. Rules of Court, rule 8.104.) Keith Bracewell caused a notice of entry of the judgment to be served on December 7, 2011. The Bracewells had 60 days thereafter to file a notice of appeal of the judgment. (Cal. Rules of Court, rule 8.104(a)(1).) They did not do so; therefore, we lack jurisdiction to review the judgment. (Carroll v. Civil Service Commission (1970) 11 Cal.App.3d 727, 732-733.)
Following a September 18, 2015 hearing at which Keith Bracewell was present, the trial court entered an order rejecting respondents' return on the writ (filed on May 30, 2014) and again remanded the matter for further proceedings. An order on the adequacy of a respondent's return on a writ is appealable as an order enforcing the judgment. (Barrett v. Stanislaus County Employees Retirement Assn. (1987) 189 Cal.App.3d 1593, 1601, fn. 4 (Barrett); City of Carmel-by-the-Sea v. Board of Supervisors (1982) 137 Cal.App.3d 964, 971 (City of Carmel-by-the-Sea).) The Bracewells did not appeal the September 18, 2015 order.
Accordingly, our review is limited to the order filed on September 21, 2016. (Cal. Rules of Court, rule 8.104(a)(1)(B.)
II
The Bracewells argue it was improper to disqualify the stores. We disagree.
The only issue before respondents on remand from the trial court's September 18, 2015 order was whether disqualification was appropriate given the reduced repayment amount. After the Department readopted its disqualification decision, the trial court ruled on September 21, 2016 that disqualification was appropriate.
The interpretation of a regulation is a question of law which we independently review. (Physicians & Surgeons Laboratories, Inc. v. Department of Health Services (1992) 6 Cal.App.4th 968, 986.) In interpreting regulations, our goal is to ascertain and effectuate the intent of the agency issuing the regulation by looking at the usual meaning of the language used and avoiding an interpretation which renders any language mere surplusage. (Diablo Valley College Faculty Senate v. Contra Costa Community College Dist. (2007) 148 Cal.App.4th 1023, 1037.) In general, we will not depart from an administrative agency's interpretation of its own regulations unless such interpretation is clearly erroneous or unauthorized. (Physicians & Surgeons Laboratories, at pp. 986-987; see Family Planning Associates Medical Group, Inc. v. Belshe (1998) 62 Cal.App.4th 999, 1004, 1008-1009 [the Department's construction of its own regulations is entitled to great weight and will be sustained if there is a reasonable basis for it].)
Subdivision (e)(2) of California Code of Regulations, title 22, section 40740 provides that a food vendor shall be disqualified for three years for "[a] pattern of claiming reimbursement for the sale of a volume of supplemental food which exceeds the food vendor's inventory purchase documentation for a specific period of time as identified in an audit." 7 Code of Federal Regulations section 246.12, subdivision (l)(1)(iii)(B) similarly provides that the State must disqualify a vendor for three years for "[a] pattern of claiming reimbursement for the sale of an amount of a specific supplemental food item which exceeds the store's documented inventory of that supplemental food item for a specific period of time." The governing terms are defined by regulation. (Cal. Code Regs., tit. 22, §§ 40740, subds. (e)(2)(A), (e)(2)(C), § 40635; 7 C.F.R. § 246.2.) A vendor must maintain records including, but not be limited to (a) inventory records showing all purchases, both wholesale and retail, in the form of invoices that identify the quantity and prices of specified authorized supplemental foods, (b) sales and use tax returns, (c) books of account, and (d) other pertinent records that the Department determines are necessary to substantiate the volume and prices charged to the State through the food vouchers redeemed by the vendor. (Health & Safety Code, § 123315, subd. (a)(6); Cal. Code Regs., tit. 22, § 40735, subd. (a); see 7 C.F.R. 246.12, subd. (h)(3)(xvi).)
Basic Foods and Basic Foods #3 were each, independent of the other, a "food vendor" in that each store was a retail store location authorized to participate in the WIC program. (Cal. Code Regs., tit. 22, § 40635; 7 C.F.R. § 246.2.) Each store had its own vendor number. Each store was audited separately. The audits of Basic Foods and Basic Foods #3 established a pattern of claiming reimbursement exceeding inventory purchase documentation.
The Bracewells nevertheless argue that when Basic Foods and Basic Foods #3 are considered as a single unit, the amount of over-reimbursement does not reach the threshold for an inappropriate pattern. But the governing regulations describe a vendor as an individual store location. (Cal. Code Regs., tit. 22, § 40635; 7 C.F.R. § 246.2.) The applicable regulations do not indicate that retail locations under common ownership may be considered as a single unit for purposes of determining disqualification. The determination of disqualification was not error.
III
Finally, the Bracewells claim there is insufficient evidence that Basic Foods and Basic Foods #3 were over-reimbursed and must repay $11,231.
On remand, ALJ Otto found, based on a preponderance of the evidence presented, that the Bracewells were over-reimbursed and were required to reimburse the Department $11,231. The Department adopted the ALJ's proposed decision. Upon respondents' return on the writ and the Bracewells' objections thereto, the trial court determined that substantial evidence supported ALJ Otto's decision. That September 18, 2015 order was appealable as an order enforcing the judgment. (Barrett, supra, 189 Cal.App.3d at p. 1601, fn. 4; City of Carmel-by-the-Sea, supra, 137 Cal.App.3d at p. 971.) The Bracewells did not appeal from that order within 180 days after its entry. (Cal. Rules of Court, rule 8.104(a)(1)(C).) As a result, they may not challenge the trial court's substantial evidence determination.
DISPOSITION
The trial court's September 21, 2016 order is affirmed.
/S/_________
MAURO, J. We concur: /S/_________
HULL, Acting P. J. /S/_________
HOCH, J.