BENN v. COUNTY OF LOS ANGELES

Filed 5/2/07

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

APPEAL from a judgment of the Superior Court of Los Angeles County. Helen I. Bendix, Judge. Affirmed.

Mazur & Mazur, Janice R. Mazur and William E. Mazur, Jr. for Plaintiffs and Appellants.

Monroy, Averbuck & Gysler, Clayton C. Averbuck and Jennifer E. Gysler for Defendant and Respondent.

A non-profit corporation which provided foster family agency and group home foster care services for dependent minors of the juvenile court brought a civil rights action for damages under 42 U.S.C. section 1983 against the County of Los Angeles (County). The corporations complaint alleged, among other claims, the County violated its procedural and substantive due process rights by placing all of its facilities on Do Not Refer status without adequate notice, hearing, or an opportunity to cure the alleged deficiencies. The trial court found as a matter of law the federal Adoption Assistance and Child Welfare Act did not create rights enforceable in a 42 U.S.C. section 1983 action. The court further found the corporations contracts were terminable at the convenience of the County and thus created no constitutionally protected property interest. Finally, the court found the Countys act of placing all the corporations facilities on Do Not Refer status was neither arbitrary nor capricious. As an alternative and independent ground the court found the County was protected from liability by the doctrine of qualified immunity. Accordingly, the trial court found the County was entitled to judgment as a matter of law and granted its motion for summary judgment. We affirm.

FACTS AND PROCEEDINGS BELOW

Appellant, Angelica Group Homes Thomas and William Foundation (Angelica), received a license to operate foster family group homes and beginning in 1988 entered into contracts with the County to provide group home foster care. Angelica later received a license to operate a foster family agency as well. Appellants, Otis Benn and his wife Lillian Benn, are the founders and principals of Angelica. By 1997 Angelica operated five group homes, four for minors and one exclusively for the care of minor mothers and their babies. According to the Benns, at its peak Angelicas group home and foster family agencies employed more than 100 people and enjoyed revenues exceeding $5 million annually.

In April 1997 the Los Angeles County Grand Jury Juvenile Services Committee issued its final report on group homes. The report raised several concerns about the quality of care foster children received in group homes. The County Board of Supervisors took several actions in response. Among other things, the County Board of Supervisors mandated increased program audits and financial audits to ensure the quality of care provided in group homes.

In the fall of 1997 the County conducted a program audit of Angelicas group homes. The County representative had an exit conference with the Benns at the conclusion of the audit to discuss her findings. The County in its written report found Angelica was seriously out of compliance with state regulations and the contract/program statement. The County audit found, among other deficiencies, Angelica had not been providing required individual and group counseling; had not secured court authorizations for psychotropic medications for some residents; foster childrens medical and dental needs had not been timely addressed; required reports to the Department of Children and Family Services (DCFS) and case workers were not timely; and foster children had been provided inadequate clothing, food and activities. The Benns offered to prepare and submit a corrective action plan to address the deficiencies discovered during the audit. They were required to submit their corrective action plan within 15 days of the October 24, 1997 audit report. The record contains no evidence the Benns ever submitted a corrective action plan.

Earlier, on October 9, 1997 the County placed the mother and child group home in Perris, California on Do Not Use status. An investigation by the Dependency Court Legal Services group found problems with the group home which ranged from inadequate medical care to inadequate food and clothing.

The County apparently placed Angelicas four other group homes on Do Not Refer status shortly thereafter.

The County conducted repeat audits of Angelicas foster family agency. The County found Angelica in material breach of contract because it continue[d] to find deficiencies with medical and dental care and psychotropic medication authorizations. In January 1998 the County placed Angelicas foster family agency on Do Not Refer status as well.

Also in 1998 the County conducted a fiscal audit of Angelica covering the year January 1, 1997 to December 31, 1997. The County Auditor/Controller reported his findings to the County Board of Supervisors in May 1999. In general terms, the audit disclosed serious deficiencies in Angelicas controls over the disbursement of group home funds, including numerous questionable expenditures, a lack of accounting records and limited or no supporting documentation. As a result [the Auditor/Controller] questioned $964,831 in expenditures made by Angelica with County funds received under its Group Home and FFA Contracts. The report recommended the DCFS resolve the questioned costs and collect any disallowed amounts.

The DCFS demanded payment from the Benns but apparently did not otherwise institute proceedings of any kind to enforce its request. According to the Benns, the County refused to take Angelica off Do Not Refer status until Angelica repaid the County the requested amounts.

The parties group home contract provides the County may impose a Do Not Refer order in the event the County, in its sole discretion, determines deficiencies pose a health or safety risk to any child. The contract provision discussing the suspension of intake, and Do Not Refer status, states: Notwithstanding any other provision of this Agreement, the COUNTY retains the right to suspend referrals of children to CONTRACTOR at any time at its sole discretion, in a manner consistent with the procedures outlined in Exhibit B. To the extent possible and reasonable and without interfering with any law enforcement investigation, the COUNTY will discuss the reason(s) for suspension of referral with the CONTRACTOR verbally and in a written letter at the time of the decision. The CONTRACTOR may discuss the recommendation or action with representatives from the COUNTY as set forth in Exhibit B.[1]

Alternatively, if the program audit reveals deficiencies which do not pose an immediate health or safety risk, then the contractor must cure the breach within the time set by the County and submit a corrective action plan. If the contractor fails to submit or implement a corrective action plan, or fails to satisfactorily cure the violations or breach, then the County may place the contractor on Do Not Refer status until the violation or breach is cured. If the violation or breach is not cured within 30 days the County may terminate the contract.[2] However, the contractor may request an appeal in which case no remedy will be enforced until the appeal is resolved.[3]

On the other hand, the contract also provides the County may terminate the contract for convenience when deemed in its best interests to do so.[4]

Angelica and the Benns filed a civil rights suit against the County and others in March 2000 seeking damages under 42 U.S.C. section 1983. They claimed they received no written notice the Do Not Refer status was being extended to all the Angelica group homes. As a result, the Benns claimed, they were denied the opportunity to present a corrective action plan in order to remove the Do Not Refer directive. The Benns claimed the Countys failure to provide the requisite notice and opportunity to be heard contravened its contractual obligations specifying how a contractor may cure defaults discovered during a program audit. Angelica and the Benns complaint alleged the Countys action deprived Angelica of a constitutionally protected property interest, violated Angelicas procedural and substantive due process rights and this same lack of procedural safeguards violated federal statutory law as well. Because the effect of the Countys action was to prohibit future placements of dependent children in any of Angelicas facilities, the Benns claimed the Do Not Refer directive effectively put Angelica out of business for which they sought monetary redress.

In the meantime, the California Department of Social Services, which controls the licensing of foster family agencies and group homes, had been conducting its own investigation of Angelica. In February 2001 the state filed formal accusations against Angelica seeking to revoke Angelicas licenses. The accusations of misconduct and deficiencies covered the period 1997 through 2000. The accusations ranged from minor allegations such as graffiti scrawled on facility walls to very serious matters such as allegations of molestation of foster children in Angelicas facilities.

In September 2001, and without admitting the truth of the allegations, Angelica and the Benns entered into a stipulation and waiver with the state. Angelica and the Benns agreed to immediately surrender Angelicas licenses and to permanently waive the right to apply or to reapply for any license issued by the department. Angelica and the Benns further waived their right to a hearing on the truth of the accusations and the right to an appeal by entering into the stipulation and waiver.

Angelica and the Benns filed their second amended and operative complaint in April 2002. By this time only the County remained as a defendant. The complaint alleged seven causes of action, only three of which remain at issue in this appeal: (1) alleged violations of the federal Adoption Assistance and Child Welfare Act, specifically violations of 42 U.S.C. section 671, subdivision (a)(3), (10) and (12), by failing to afford Angelica a hearing to determine the propriety of depriving Angelica of foster care maintenance payments based on the program and fiscal audits; (2) alleged violations of procedural due process by imposing and maintaining Do Not Refer status on Angelicas group homes without providing the contractually required notice, the opportunity to cure the alleged deficiencies, and a hearing to challenge the Countys decision; and (3) alleged violations of substantive due process by the Countys arbitrary and capricious action in imposing the Do Not Refer directive, thereby depriving Angelica of its protected property interest in its contracts with the County. Angelicas complaint sought compensatory damages under 42 U.S.C. section 1983, interest, attorneys fees and cost of suit.

The County moved for summary judgment, or summary adjudication of issues in the alternative. After extensive briefing, supplemental briefing and oral argument covering several months the trial court ultimately granted the Countys motion for summary judgment. The trial court found as a matter of law the Adoption Assistance and Child Welfare Act did not create rights enforceable in a 42 U.S.C. section 1983 action. The court further found the corporations contracts were terminable at the convenience of the County and thus created no constitutionally protected property interest. Finally, the court found the Countys act in placing all the corporations facilities on Do Not Refer status was neither arbitrary nor capricious given the alleged problems discovered during the various audits. As a separate and independent ground, the trial court found the County was immune from liability for its actions under the doctrine of qualified immunity. Accordingly, the trial court found the County was entitled to judgment as a matter of law and granted its motion for summary judgment. Angelica and the Benns appeal from the adverse judgment.[5]

DISCUSSION

I. STANDARD OF REVIEW OF A SUMMARY JUDGMENT.

Because this case comes before us after the trial court granted a motion for summary judgment, we take the facts from the record that was before the trial court when it ruled on that motion. (State Depart. of Health Services v. Superior Court (2003) 31 Cal.4th 1026, 1034-35.) We review the trial courts decision de novo, considering all the evidence set forth in the moving and opposing papers except that to which objections were made and sustained. (Id. at p. 1035.) We liberally construe the evidence in support of the party opposing summary judgment and resolve doubts concerning the evidence in favor of that party. (Wiener v. Southcoast Childcare Centers, Inc. (2004) 32 Cal.4th 1138, 1142.)[6]

Summary judgment is appropriate if all the papers submitted show there is no triable issue as to any material fact and the moving party is entitled to a judgment as a matter of law.[7]

We review the judgment with these standards in mind.

II. ANGELICA HAS NO PROPERTY INTEREST PROTECTED BY THE DUE PROCESS CLAUSE OF THE FEDERAL CONSTITUTION BASED ON ITS CONTRACTS WITH THE COUNTY.

Angelica contends its contracts with the County gave it a reasonable expectation of an entitlement to continued foster children placements and thus a protected property interest in continued funding from the County, enforceable in an action under 42 U.S.C. section 1983 (section 1983).[8]

Absent a finding the group homes posed a health or safety risk to foster children the parties contract required the County to provide Angelica certain procedural protections before the County could impose Do Not Refer status on its group homes. Apparently, Angelica was not provided the contractually required notice, was not provided the opportunity to prepare and implement a corrective action plan as provided for in the contract, and was not given appeal rights prior to the Countys decision to impose the Do Not Refer directive. To the extent the County failed to adhere to these contractual requirements for being placed on permanent Do Not Refer status, Angelica had a breach of contract claim. However, Angelica does not assert a breach of contract claim. Instead, Angelica seeks damages for alleged violations of its constitutional rights.

Section 1983 imposes liability on anyone who, under color of state law, deprives a person of any rights, privileges, or immunities secured by the Constitution and laws.[9]

A threshold requirement to a substantive or procedural due process claim is the plaintiffs showing of a liberty or property interest protected by the Constitution.[10] A contract with a state entity can give rise to a property right protected under the Fourteenth Amendment.[11] However, although every contract may confer some legal rights under state law, not all contracts give rise to a property right protected under the Due Process Clause.[12] As the Supreme Court has emphasized, [t]he hallmark of property, . . . , is an individual entitlement grounded in state law, which cannot be removed except for cause. [Citations.] Once that characteristic is found, the types of interest protected as property are varied and, as often as not, intangible, relating to the whole domain of social and economic fact. [Citations.][13]

[T]wo general types of contract rights are recognized as property protected under the Fourteenth Amendment: (1) where the contract confers a protected status, such as those characterized by a quality of either extreme dependence in the case of welfare benefits, or permanence in the case of tenure, or sometimes both, as frequently occurs in the case of social security benefits; or (2) where the contract itself includes a provision that the state entity can terminate the contract only for cause.[14]

The contract at issue in this case does not fall into any of the categories of contracts recognized as creating a protected property interest. Angelica does not have protected status characterized by extreme dependence on the state as might a qualified welfare or social security recipient.[15] Angelica had a contract to supply services to the County. Neither the contracts subject matter nor its terms provide the requisite degree of permanence as a contract for tenure or employment for a term of years might.[16] Most significantly, the contract contains no provision stating it could only be terminated for cause.[17]

Angelica notes these facts but contends the clearly articulated, mandatory procedures set forth in the contract for being placed on Do Not Refer status created an entitlement to continued placements. Angelica argues these procedural requirements were intended to be such a significant restriction on decision making they gave rise to a legitimate claim of entitlement.

Procedural requirements ordinarily do not transform a unilateral expectation into a constitutionally protected property interest. [Citation.] A constitutionally protected interest has been created only if the procedural requirements are intended to be a significant substantive restriction on . . . decision making. [Citations.] If the procedures required impose no significant limitation on the discretion of the decision maker, the expectation of a specific decision is not enhanced enough to establish a constitutionally protected interest in the procedures. [Citation.][18]

Contrary to Angelicas argument, the procedural steps specified in the contract for placing a group home on permanent Do Not Refer status did not restrict the decision makers discretion regarding how or whether it could terminate the contractor in this case effectively terminate the contract by preventing new referrals to its homes. The group home contract by its terms permitted the County to terminate that contract at any time for convenience when the County deemed termination to be in its best interest.[19]

As to the parties foster family agency agreement, it does not contain any of the procedural safeguards found in the group home contract for being placed on Do Not Refer status. Moreover, the County may terminate the foster family agency contract among other reasons simply for convenience, provided the termination is not arbitrary and capricious, unreasonable or discriminatory. According to the DCFS report of January 22, 1998, repeated audits of the Angelica foster family agency and reviews of corrective action plans continued to find problems with medical and dental care, as well as with psychotropic medication authorizations. Because these matters affected the health and welfare of the children, and remained uncorrected despite multiple audits and corrective plans, the DCFS recommended the Angelica foster family agency be placed on Do Not Refer status as well. As a matter of law the Countys action is not arbitrary and capricious, unreasonable or discriminatory in light of the serious nature of the deficiencies prompting the Do Not Refer status.

The mere inclusion of the termination for convenience clause in the contracts eliminated the essential characteristic of permanence and entitlement necessary to a finding of a protectable property right. As courts have held, when a state entity can terminate a contract for reasons other than cause the contract does not confer a protected status on the plaintiff.[20]

For example in Economic Development Corporation of Dade County, Inc. v. Stierheim[21]a contractor brought a civil rights action against the county and county manager for claims arising from termination of a contract to distribute funds pursuant to a grant program administered by HUD. Under the parties contract the county could terminate the agreement on one of two conditions: (1) for cause, if the contractor failed to perform or (2) without cause, for convenience on two weeks notice. Given this contractual provision, the court found the contractor had no assurances that its contract would still be in force for more than the next two weeks. This lack of an entitlement to the continued existence of its contractual relationship with the county prevented [the contractor] from acquiring a property interest in its contract with the county.[22]

The court considered it immaterial the contract had actually been terminated for cause rather than for the countys convenience. That the county cancelled the contract pursuant to the for-cause provision instead of the convenience provision does not affect this analysis. The question of whether a party has a property interest in a contract entails an examination of the rights that party has under the contract. If there was no property interest when the contract was entered into, no property interest was created by the contracts being terminated pursuant to one of its provisions instead of another. It is the existence of the convenience provision, not its invocation, that defeats [the contractors] claim that it was deprived of property without due process of law when the contract was terminated.[23]

Story Continue as Part II

Publication Courtesy of San Diego County Legal Resource Directory.

Analysis and review provided by San Diego County Property line attorney.

[1] Paragraph 39 of the 1998 group home contract between Angelica and the County.

We decline Angelicas request to take judicial notice of a document purporting to be the Exhibit B mentioned in the parties group home contract. The document was not part of the record before the trial court. The document is not certified as authentic, and in any event, refers to a Foster Care Agreement and not to the group home contract. Moreover, because Angelica brought no claim for breach of contract the document is irrelevant to any issue raised in this appeal.

[2] The parties contract provides the County may terminate a group home contract if the County at its sole discretion finds any one of a number of circumstances indicating a default, misrepresentation, noncompliance with a corrective action plan, or the like.

[3] Paragraph 27.1 of the 1998 group home contract between Angelica and the County.

[4] Paragraph 28.1 of the parties group home contract states: This Agreement may be terminated, when such action is deemed by COUNTY to be in its best interest. Termination of this Agreement shall be effected by delivery to CONTRACTOR of a written notice of termination specifying the extent to which performance of work is terminated and the date upon which such termination becomes effective. The date upon which such termination becomes effective shall be no less than sixty (60) days after the notice is sent unless by mutual consent.

The parties foster family agency agreement similarly permits the County to terminate the contract for convenience, provided the termination is not arbitrary and capricious, unreasonable or discriminatory. (Para. 25.1 of the parties foster family agency foster care agreement effective through December 31, 1998.)

[5] The trial court found the Benns lacked standing to pursue individual claims because they were not parties to Angelicas contracts with the County. Although the Benns filed a notice of appeal they have apparently conceded the propriety of the courts ruling by failing to challenge it on appeal.

[6]Yanowitz v. LOreal USA, Inc. (2005) 36 Cal.4th 1028, 1037.

[7] Code of Civil Procedure section 437c, subdivision (c).

[8] Angelica does not claim any constitutionally protected liberty interest.

[9]Blessing v. Freestone (1997) 520 U.S. 329, 340.

[10]Board of Regents of State Colleges v. Roth (1972) 408 U.S. 564, 576.

[11]Board of Regents of State Colleges v. Roth, supra, 408 U.S. 564, 577.

[12]Perry v. Sindermann (1972) 408 U.S. 593, 599-601 [a professors contract terminable only for cause was a property right protected by the Fourteenth Amendment]; compare, San Bernardino Physicians Services Medical Group, Inc. v. San Bernardino County (9th Cir. 1987) 825 F.2d 1404, 1408 [contract to supply medical services to the County did not create a legitimate claim of entitlement rising to the level of a property interest protected by the Due Process Clause].

[13]Logan v. Zimmerman Brush Co. (1982) 455 U.S. 422, 430-431, citing as examples Barry v. Barchi (1979) 443 U.S. 55 [horse trainers license]; Memphis Light, Gas & Water Div. v. Craft (1978) 436 U.S. 1 [utility service]; Mathews v. Eldridge (1976) 424 U.S. 319 [disability benefits]; Goss v. Lopez (1975) 419 U.S. 565 [high school education]; Connell v. Higginbotham (1971) 403 U.S. 207 [government employment]; Bell v. Burson (1971) 402 U.S. 535 [drivers license]; Goldberg v. Kelly (1970) 397 U.S. 254 [welfare benefits].

[14]Linan-Faye Construction Co., Inc. v. Housing Authority of the City of Camden (3d Cir. 1995) 49 F.3d 915, 932, quoting Unger v. National Residents Matching Program (3d Cir. 1991) 928 F.2d 1392, 1399.

[15] See, e.g., Goldberg v. Kelly, supra, 397 U.S. 254 [welfare benefits].

[16] See, e.g., Slochower v. Board of Higher Education (1956) 350 U.S. 551 [tenured college professor had a property interest protected by procedural due process]; Wieman v. Updegraff (1952) 344 U.S. 183 [college professors and staff members dismissed during the terms of their contracts had property interests protected by procedural due process].

[17] Compare Perry v. Sindermann, supra, 408 U.S. 593, 599-601 [a professors contract terminable only for cause was a property right protected by the Fourteenth Amendment].

[18]Goodisman v. Lytle (9th Cir. 1984) 724 F.2d 818, 820 [guidelines in the faculty code did not enhance the candidates expectation of obtaining tenure enough to establish a constitutionally protected interest]; compare, Wedges/Ledges of California, Inc. v. City of Phoenix (9th Cir. 1994) 24 F.3d 56, 63-64 [city ordinances made issuance of licenses of amusement games mandatory upon a finding the games qualified as games of skill, thereby eliminating the citys discretion to revoke or deny licenses for games previously certified as games of skill by the city treasurer].

[19] Paragraph 28.1 of the parties group home contract states: This Agreement may be terminated, when such action is deemed by COUNTY to be in its best interest. Termination of this Agreement shall be effected by delivery to CONTRACTOR of a written notice of termination specifying the extent to which performance of work is terminated and the date upon which such termination becomes effective. The date upon which such termination becomes effective shall be no less than sixty (60) days after the notice is sent unless by mutual consent.

[20] See Linan-Faye Construction Co., Inc. v. Housing Authority of the City of Camden, supra, 49 F.3d 915, 932 [the state entity could terminate the contract for reasons other than for cause. Indeed, it could be terminated for convenience. To grant Linan-Faye a remedy under 1983 would create the wholesale federalization of state public contract law . . . .].

[21]Economic Development Corp. of Dade County, Inc. v. Stierheim (11th Cir. 1986) 782 F.2d 952.

[22]Economic Development Corp. of Dade County, Inc. v. Stierheim, supra, 782 F.2d 952, 954.

[23]Economic Development Corp. of Dade County, Inc. v. Stierheim, supra, 782 F.2d 952, 954.