SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-3672-14T3

IN RE: PRELIMINARY CONTRACT

FINANCIAL SETTLEMENTS ON THE 

CENTER FOR FAMILY SUPPORT'S 

CONTRACTS WITH THE DIVISION OF 

DEVELOPMENTAL DISABILITIES,

CONTRACT NOS. 01ZX10N and 01ZX11N

___________________________________

Argued July 6, 2017 – Decided

Before Judges Yannotti and Haas.

On appeal from the Department of Human 

Services, Division of Developmental 

Disabilities.

Dennis F. Driscoll argued the cause for 

appellant The Center for Family Support NJ,

Inc. (Inglesino, Webster, Wyciskala & Taylor, 

LLC, attorneys; John P. Inglesino and Lisa D. 

Taylor, of counsel and on the brief; Owen T. 

Weaver, on the briefs).

Francesco Ferrantelli, Jr., Deputy Attorney 

General, argued the cause for respondent

Department of Human Services, Division of 

Developmental Disabilities (Christopher S. 

Porrino, Attorney General, attorney; Beth 

Leigh Mitchell, Assistant Attorney General, of 

counsel; John Regina, Deputy Attorney General, 

on the brief).

PER CURIAM

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

This opinion shall not "constitute precedent or be binding upon any court." 

Although it is posted on the internet, this opinion is binding only on the 

parties in the case and its use in other cases is limited. R.1:36-3.

July 20, 2017
2 A-3672-14T3

Appellant The Center For Family Support NJ, Inc. (the Center) 

appeals from the March 6, 2015 decision of respondent Division of 

Developmental Disabilities (the Division) requiring the Center to 

repay the Division $883,631 in funds it allegedly misspent under 

two contracts appellant entered into with the Division for the 

two-year period between July 1, 2009 and June 30, 2011. On appeal, 

the Center contends that the Division is prohibited from recovering 

these funds because the Division should have promulgated the 

contract terms that the Center violated as administrative 

regulations under the Administrative Procedure Act (APA), N.J.S.A.

52:14B-1 to -15. Having reviewed the record in light of the 

Center's arguments and the applicable law, we affirm.

We derive the following facts from the record presented on 

appeal. The Division "[p]rovides services for eligible 

developmentally disabled persons by identifying appropriate 

programs to meet their needs" and by contracting with those 

programs to provide services to these individuals. N.J.S.A. 30:6D27(a). Pursuant to this statutory authority, the Division has 

contracted with the Center since 1997 to provide services to 

Division clients.

During this period, the Center and the Division signed a 

"Standard Language Document for Social Service and Training 

Contracts" (SLD), developed by the Department of Human Services 
3 A-3672-14T3

(the Department). The SLD incorporates the standard terms and 

conditions of the contract, and a new SLD is executed each fiscal 

year that a provider agrees to provide services to Division 

clients.

The SLD defines a contract as "this document [the SLD], the 

Annex(es), any additional appendices or attachments (including any 

approved assignments, subcontracts or modifications) and all 

supporting documents." The SLD further states that the "[c]ontract 

constitutes the entire agreement between the parties."

With particular relevance to the present appeal, Section 3.11 

of the SLD states:

In the administration of this [c]ontract, the 

Provider Agency shall comply with all 

applicable policies and procedures issued by 

the Department including, but not limited to, 

the policies and procedures contained in the 

Department's Contract Reimbursement Manual

(as from time to time amended) and the 

Department's Contract Policy and Information 

Manual [(CPIM)] (as from time to time 

amended). Failure to comply with these 

policies and procedures shall be grounds to 

terminate the contract.

The CPIM is a compendium of policy circulars that are 

incorporated by reference into each Division contract. Among 

other things, these circulars cover such standard and decidedly 

mundane contract terms and conditions as the documents a provider 

must provide to the Division in connection with the contract 
4 A-3672-14T3

negotiation (Policy Circular P1.01); what happens if the provider 

merges with or acquires another company (Policy Circular P1.09); 

terms applicable to the closeout of a contract (Policy Circular 

P7.01); the procedures the provider and the Division will follow 

in the event of an audit (Policy Circular P7.06); and the minimum 

amount of insurance a provider must have in place (Policy Circular 

P8.14).

In this appeal, the Center challenges the inclusion of Policy 

Circular P1.10 in its contract with the Division. This circular 

governs the procedures a provider must follow in order to modify 

the contract during the fiscal year. The circular states that a

modification must be approved by the Division in advance of any 

"[c]hange in any [b]udget [c]ategory which exceeds the [f]lexible 

[l]imits" of the contract.1 The provider must also seek the 

Division's prior written approval before it "[t]ransfer[s] [any]

budgeted cost across DHS [c]ontracts, or [c]lusters as identified 

in the [c]ontract."2

 

1 The term "budget category" means "one of the major groupings of 

cost identified in the Contract Budget Annex B Form." The term 

"flexible limits" refers to the "upper dollar limit which is 

established for each [b]udget [c]ategory, and which may not be 

exceeded without an approved [c]ontract [m]odification."

 

2 The term "cluster" means "one or more service-related [p]rograms 

. . . identified in the [c]ontract."
5 A-3672-14T3

Thus, for example, if the provider has agreed in the contract 

that it will spend a specified amount for a particular service 

during the contract year, it may not exceed that amount without 

first obtaining a written contract modification approved by the 

Division. In addition, the provider may not transfer funds from 

other budget categories to cover cost overruns in a different 

budget category unless it has obtained prior Division approval. 

These routine contract provisions as set forth in the circular 

have been included, in one form or another, in each contract the 

Center has entered into with the Division since at least 2002. 

The circular specifically states that the provider's "[f]ailure 

to complete a required [c]ontract [m]odification to the [Division] 

may result[,]" among other things, in "[c]ontract [d]efault [and] 

"[r]ecoupment of [f]unds" by the Division.

The Center entered into provider contracts with the Division 

subject to the above terms for State fiscal years (FY) 2010 and 

2011. Prior to the execution of these agreements, the Division 

reminded the Center in writing that if it "request[ed] a contract 

modification to shift funds between clusters, the modification 

must be approved prior to implementation[,]" and that "[a]ny 

expenditure incurred prior to approval will be disallowed" in 

accordance with the terms of the CPIM.
6 A-3672-14T3

Subsequent audits of the Center's FY 2010 and FY 2011 

contracts revealed that the Center exceeded its budget for 

particular line items and "reallocated funds" from other budget 

categories and clusters "to meet pressing needs" in connection 

with those line items. The Center conceded that it did not obtain 

prior Division approval for these expenditures.

In accordance with the express terms of the Center's contract, 

the Division sent a letter to the Center on February 22, 2012 

demanding the return of $507,961 in misspent funds for FY 2010, 

and a second letter on October 31, 2014, seeking an additional

$375,670 covering the Center's improper expenditures for FY 2011. 

The Center balked at repaying these funds and alleged, among other 

things, that the Division should have promulgated the contract 

terms as administrative regulations, the Division waived its right 

to seek recoupment of the contract funds, and that the Division's 

claims were barred by the doctrines of equitable estoppel and 

laches.

After settlement attempts failed, the Division sent a letter 

to the Center on March 6, 2015, again demanding the return of 

$883,631 in contract funds. The Center responded by filing a 

notice of appeal from the March 6, 2015 decision to this court. 

In response, the Division filed a motion to dismiss the appeal and 

transfer it to the Law Division. While that motion was pending, 
7 A-3672-14T3

the Center sent written notice to the Division that it would be 

filing a breach of contract claim against the agency under the 

Contractual Liability Act, N.J.S.A. 59:13-1 to -10. On August 27, 

2015, the Center filed its complaint against the Division in the 

Law Division.3

Thereafter, the parties participated in a case management 

conference conducted under the auspices of our Civil Appeals 

Settlement Program. As a result of that conference, we ordered 

that the Center's present appeal could "proceed, limited solely 

to the issue of whether the implementation of [the Division's] 

policy violates the" APA. We further ordered that the question 

of whether the Division "properly applied" its policy as set forth 

in the CPIM, "and all other issues and defenses," would be 

adjudicated in the Law Division action, which we stayed pending 

the resolution of this appeal.

On appeal, the Center contends that the Division's "adoption 

of Policy Circular P1.10 violated the" APA; constituted an 

"administrative rule"; and was "invalid because [the Division] 

failed to adhere to the procedures of the" APA. Thus, the Center 

contends that the requirements for contract modification set forth 

 

3 Docket No. L-007739-15.
8 A-3672-14T3

in the circular, and made a part of its contract with the Division, 

are invalid. We disagree.

Agencies are accorded "wide latitude in improvising 

appropriate procedures to effectuate their regulatory 

jurisdiction." Metromedia, Inc. v. Dir., Div. of Taxation, 97 

N.J. 313, 333 (1984). "Administrative agencies possess the ability 

to be flexible and responsive to changing conditions[,]" which 

"includes the ability to select those procedures most appropriate 

to enable the agency to implement legislative policy." In re 

PSE&G Co. Rate Unbundling, 167 N.J. 377, 385 (2001) (internal 

quotation marks and citation omitted).

Thus, in exercising its discretion when discharging its 

statutory duties, an agency may choose between formal action, such 

as rulemaking or adjudication, or informal action, provided the 

choice complies with due process requirements and the APA. Nw.

Covenant Med. Ctr. v. Fishman, 167 N.J. 123, 135 (2001) (citing 

In re Request for Solid Waste Util. Customer Lists, 106 N.J. 508, 

518 (1987)). Informal agency action constitutes the bulk of the 

activity of most administrative agencies, and it has been defined 

as any determination that is taken without a trial-type hearing. 

In re Solid Waste, supra, 106 N.J. at 519. 

Significantly, the Supreme Court has further defined informal 

agency action as "statutorily authorized agency action" such as 
9 A-3672-14T3

"investigating, publicizing, planning, and supervising a regulated 

industry." Ibid. The term also includes "negotiating, settling, 

contracting, and advising" within the scope of its statutory 

authority. Ibid. (emphasis added). Thus, when an agency 

contracts with a private entity, it engages in "informal agency 

action" and is not required to promulgate an administrative 

regulation in order to do so.

Although administrative "agencies 'have wide latitude in 

improvising appropriate procedures to effectuate their regulatory 

jurisdiction[,]' . . . this discretion is not unbounded." Deborah 

Heart & Lung Ctr. v. Howard, 404 N.J. Super. 491, 504 (App. Div.) 

(quoting Metromedia, supra, 97 N.J. at 333-34), certif. denied, 

199 N.J. 129 (2009). Thus, an agency's informal action may 

constitute de facto rulemaking, despite the label the agency gives 

to it. "In order to avoid abuse" by an agency of its "broad 

administrative powers, our Supreme Court enumerated six factors 

that are weighed to determine whether agency action must be 

designated as an administrative rulemaking requiring 

implementation through the APA." E.B. v. Div. of Med. Assistance 

and Health Servs., 431 N.J. Super. 183, 207 (App. Div. 2013) 

(citing Metromedia, supra, 97 N.J. at 331-32). 

In Metromedia, the Court stated:
10 A-3672-14T3

[A]n agency determination must be considered 

an administrative rule . . . if it appears 

that agency determination, in many or most of 

the following circumstances, (1) is intended 

to have wide coverage encompassing a large 

segment of the regulated or general public, 

rather than an individual or a narrow select 

group; (2) is intended to be applied generally 

and uniformly to all similarly situated 

persons; (3) is designed to operate only in 

future cases, that is, prospectively; (4) 

prescribes a legal standard or directive that 

is not otherwise expressly provided by or 

clearly and obviously inferable from the 

enabling statutory authorization; (5) 

reflects an administrative policy that (i) was 

not previously expressed in any official and 

explicit agency determination, adjudication 

or rule, or (ii) constitutes a material and 

significant change from a clear, past agency 

position on the identical subject matter; and 

(6) reflects a decision on administrative 

regulatory policy in the nature of the 

interpretation of law or general policy.

[Metromedia, supra, 97 N.J. at 331-32.]

These factors, "either singly or in combination," determine 

whether agency action amounts to the promulgation of an 

administrative rule. Id. at 332. A de facto rule will be held 

invalid unless the agency complied with the rulemaking 

requirements of the APA. Id. at 328.

Viewed against this background and applying the Metromedia

standards, we are satisfied that the Division did not engage in 

prohibited de facto rulemaking when it contracted with the Center 

to provide services under the terms and conditions set forth in 
11 A-3672-14T3

the CPIM. As noted above, the Division is statutorily authorized 

to contract with private entities, such as the Center, in order 

to provide services to its clients. N.J.S.A. 30:6D-27(a). The 

contract modification terms that the Center now challenges were 

specifically incorporated into the parties' written annual 

contract, which expressly delineated each party's duties and 

obligations. The fact that the Division included a requirement 

that the Center obtain advance agency approval before spending 

beyond the limits of its approved budget in any category or cluster 

in the contract is exactly the type of "informal action" by an 

agency that the Supreme Court has held does not require rulemaking. 

In re Solid Waste, supra, 108 N.J. at 519; see also Nw. Covenant 

Med. Ctr., supra, 167 N.J. at 135. 

Moreover, the contract modification provisions set forth in 

Policy Circular P1.10 and included in the CPIM and the SLD between 

the Division and the Center also do not meet the Metromedia

criteria for a rule. The first two criteria are not met because 

the Division is not "regulating" the Center or the general public 

by making this circular part of the contract. Metromedia, 98 N.J.

at 331. Rather, it has simply included standard contract 

modification requirements in the parties' agreement. The Center, 

like any other private service provider, is not required to 

contract with the Division for any purpose.
12 A-3672-14T3

The third Metromedia criterion is also not met because the 

contract modification provisions in the circular are not designed 

to operate in future cases. Ibid. Instead, they apply to the 

particular contract entered into by the Division and a service 

provider for a specific one-year period. Because the Division is 

statutorily authorized to contract with service providers, which 

necessarily includes the authority to set contract terms, the 

circular does not "prescribe[] a legal standard or directive that 

is not otherwise expressly provided by or clearly and obviously 

inferable from the enabling statutory authorization." Ibid. Thus, 

the fourth Metromedia criterion is also inapplicable.

The fifth and sixth criteria are also not present. The 

contract modification provisions set forth in the circular have 

been part of the Division's contracts since at least 2002 and, 

therefore, do not reflect a "material and significant change" from 

past contract provisions. Ibid. Finally, these provisions do not 

constitute a "decision on administrative regulatory policy in the 

nature of the interpretation of law or general policy." Id. at 

331-32. As stated above, they are simply several of the dozens, 

if not hundreds, of typical contract provisions included in any 

well-drafted State agency contract.

In sum, we conclude that the Division was not required to 

comply with the APA's rulemaking requirements when it decided to 
13 A-3672-14T3

include the contract modification provisions set forth in Policy 

Circular P1.10 in the contracts it entered into with the Center. 

With the resolution of this issue, the parties may now proceed 

with their pending Law Division action and, therefore, we vacate 

our previously-ordered stay of that proceeding.

Affirmed, and remanded for further proceedings in the Law 

Division. We do not retain jurisdiction.