Court Opinion

ID: 4537610
Source: CourtListenerOpinion
Date Created: 2020-05-29 14:03:35.142935+00
Date Added: 2024-06-11T12:42:30.031243
License: Public Domain

IN THE SUPREME COURT OF IOWA
                              No. 18–0189

                           Filed May 29, 2019

JULIE PFALTZGRAFF,

      Appellant,

vs.

IOWA DEPARTMENT OF HUMAN SERVICES,

      Appellee.

      On review from the Iowa Court of Appeals.

      Appeal from the Iowa District Court for Polk County, Scott D.

Rosenberg, Judge.

      DHS seeks further review of a court of appeals decision. DECISION

OF COURT OF APPEALS AFFIRMED IN PART AND VACATED IN PART;

DISTRICT COURT JUDGMENT AFFIRMED IN PART, REVERSED IN

PART, AND REMANDED WITH DIRECTIONS.

      Trent W. Nelson of Sellers, Galenbeck & Nelson, Des Moines, for

appellant.

      Thomas J. Miller, Attorney General, Jeffrey S. Thompson, Solicitor

General, and Tabitha J. Gardner, Assistant Attorney General, for appellee.
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CHRISTENSEN, Chief Justice.

       This appeal is a companion case to Endress v. Iowa Department of

Human Services, ___ N.W.2d ___, ___ (Iowa 2020) and raises similar issues.

The Iowa Department of Human Services (DHS) attempted to recoup

$31,815.46 for child-care services rendered by the provider during agency

review of her cancelled provider agreement and registration. DHS seeks

further review of the court of appeals decision that held DHS’s notice

concerning      recoupment        of    child-care     service     payments       was

constitutionally deficient. DHS also seeks further review of the court of

appeals decision awarding the provider attorney fees under Iowa Code

section 625.29(1)(b) (2017). For the reasons set forth in Endress, we vacate

the court of appeals decision on these matters. However, the provider

should be allowed to raise unjust enrichment as an offset to DHS’s effort

to recoup overpayments.         Regarding the provider’s reapplication for a

CCAP agreement, we affirm the court of appeals decision that she failed to

preserve error on this claim. Therefore, the decision of the court of appeals

is affirmed in part and vacated in part; we affirm in part and reverse in

part the judgment of the district court. We remand the case to the district

court to remand to DHS for consideration of the provider’s equitable relief. 1

       I. Background Facts and Proceedings.

       Julie Pfaltzgraff was a registered child-care provider with DHS. On

May 6, 2016, DHS revoked Pfaltzgraff’s Child Care Assistance Provider

(CCAP) agreement as well as her registration.                The notice indicated

Pfaltzgraff may keep her benefits while an appeal is pending but it

cautioned, “Any benefits you get while your appeal is being decided may

have to be paid back if the Department’s action is correct.” Pfaltzgraff

       1For  the reasons discussed in Endress, this opinion controls all aspects of the
disposition of this appeal.
                                      3

elected to appeal the revocations. The appeal form asked, “Do you want

your benefits to continue during your appeal?” It again cautioned, “You

may have to pay them back, if you lose your appeal.” Pfaltzgraff checked

“Yes” to continue her benefits. DHS affirmed its decision to terminate

Pfaltzgraff’s CCAP agreement but reversed its decision to revoke her child-

care registration.   Pfaltzgraff did not seek judicial review of the final

decision. She submitted a new application for a CCAP agreement and was

approved.

      One month after the final decision, DHS sent Pfaltzgraff a “Notice of

Child Care Assistance Overpayment” in the amount of $31,815.46 for the

months of May 2016 to October 2016. DHS alleged the overpayment was

due to “[a] mistake by [Pfaltzgraff] that caused DHS to pay [her] incorrectly

for child care services” and that the “overpayment happened because of

[her] choice to continue benefits pending an appeal.” Pfaltzgraff appealed,

and DHS affirmed it “correctly computed and established a claim for

overpaid child care assistance.” Pfaltzgraff petitioned for judicial review of

DHS’s decision. The district court concluded the recoupment exercised by

DHS comported with due process and affirmed. The district court

determined the other issues argued and presented by Pfaltzgraff were not

preserved for appeal.

      The court of appeals reversed the district court’s judgment regarding

the recoupment of CCAP overpayments and determined Pfaltzgraff was

entitled to an award of her attorney fees.      It also affirmed the district

court’s decision that Pfaltzgraff failed to preserve error on her claim

respecting the processing of her reapplication for a new CCAP agreement.

We granted further review.
                                      4

      II. Standard of Review.

      Different standards of review apply to the claims raised by

Pfaltzgraff.   First, the Iowa Administrative Procedure Act defines the

standards we apply in our judicial review of agency action to determine

whether we reach the same conclusion as the district court. See Iowa

Code § 17A.19(10); Brewer-Strong v. HNI Corp., 913 N.W.2d 235, 242 (Iowa

2018). “The district court may properly grant relief if the agency action

prejudiced the substantial rights of the petitioner and if the agency action

falls within one of the criteria listed in section 17A.19(10)(a) through (n).”

Brakke v. Iowa Dep’t of Nat. Res., 897 N.W.2d 522, 530 (Iowa 2017).

      Second, Pfaltzgraff’s constitutional claims in agency proceedings are

reviewed de novo. Ghost Player, L.L.C., v. State, 860 N.W.2d 323, 326 (Iowa

2015).

      Finally, we review for the correction of errors at law whether attorney

fees are available. Colwell v. Iowa Dep’t of Human Servs., 923 N.W.2d 225,

232 (Iowa 2019).

      III. Analysis.

      For the reasons stated in Endress, we conclude DHS’s notice of

recoupment meets procedural due process requirements. We affirm the

district court on this basis. However, we conclude Pfaltzgraff should be

allowed an opportunity to raise unjust enrichment as an offset against

DHS’s effort to recoup overpayments.          At the administrative level,

Pfaltzgraff argued, “[T]he Department will be unjustly enriched if she is

forced to repay the childcare assistance payments billed for services

rendered.” The administrative law judge (ALJ) deemed her claim to be

without merit.      Likewise, Pfaltzgraff pursued her claim of unjust

enrichment in her action for judicial review, which the district court

deemed unpreserved.      We think this was error.       As we explained in
                                      5

Endress, even when a party is in breach, the party “has a claim in

restitution against the recipient of performance, as necessary to prevent

unjust enrichment.”         Restatement (Third) of Restitution & Unjust

Enrichment § 36(1), at 585–86 (Am. Law Inst. 2011).        Here, the issue

remaining is whether DHS’s enrichment at Pfaltzgraff’s expense was

“under circumstances that make it unjust for [DHS] to retain the benefit.”

Behm v. City of Cedar Rapids, 922 N.W.2d 524, 577 (Iowa 2019).

Therefore, we remand to the district court to remand to DHS so that it may

fully consider Pfaltzgraff’s unjust-enrichment claim as an offset against

DHS’s claim for recoupment.

      We also conclude, as expressed in Endress, that DHS’s role in this

case was primarily adjudicative.          Therefore, DHS is not liable for

Pfaltzgraff’s attorney fees under Iowa Code section 625.29(1)(b).       With

respect to Pfaltzgraff’s claim that DHS failed to process her reapplication

for a CCAP agreement, we agree she failed to preserve error on that claim.

During Pfaltzgraff’s appeal of the overpayment computation, the ALJ noted

in its proposed decision,

      Pfaltzgraff originally submitted an application for a new child
      care assistance agreement on September 2, 2016. That
      application was rejected by the Department. In doing so, the
      Department asserted that it could not consider a new
      application while the status of her previous child care
      assistance agreement was being considered on appeal. The
      Department could not cite any legal basis for this claim.
      However, it does not appear Pfaltzgraff appealed that action
      and it is not properly before this administrative law judge for
      review.

(Emphasis added.) We affirm the district court’s conclusion that this issue

was not preserved.

      IV. Conclusion.

      DHS’s notice of recoupment afforded Pfaltzgraff procedural due

process.   However, we conclude Pfaltzgraff should be allowed an
                                     6

opportunity to raise unjust enrichment as an offset to DHS’s effort to

recoup overpayments. We therefore vacate the court of appeals decision

and reverse the district court judgment on this issue and remand to the

district court with directions to remand the matter to the agency to

consider unjust enrichment as an offset (at least in part) to DHS’s claim

for recoupment.      Because DHS’s role in this case was primarily

adjudicative, it is not liable for Pfaltzgraff’s attorney fees. Therefore, we

vacate the court of appeals decision on this issue. Lastly, we affirm the

court of appeals decision and the district court judgment that Pfaltzgraff

failed to preserve error on her claim regarding the reapplication for a CCAP

agreement.

      DECISION OF COURT OF APPEALS AFFIRMED IN PART AND

VACATED IN PART; DISTRICT COURT JUDGMENT AFFIRMED IN

PART, REVERSED IN PART, AND REMANDED WITH DIRECTIONS.

      Waterman and Mansfield, JJ., join this opinion. Appel, J., files a

concurrence in part and dissent in part. McDonald, J., files a separate

concurrence in part and dissent in part joined by Oxley and McDermott,

JJ.
                                      7

                       #18–0189, Pfaltzgraff v. Iowa Dep’t of Human Servs.

APPEL, Justice (concurring in part and dissenting in part).

      As I articulated in Endress v. Iowa Department of Human Services,

___ N.W.2d ___, (Iowa 2020) (Appel, J., concurring in part and dissenting

in part), I would affirm the decision of the district court on the due process

issue, but I would reverse the decision of the district court on the question

of availability of attorney fees under Iowa Code section 625.29.
                                     8

                      #18–0189, Pfaltzgraff v. Iowa Dep’t of Human Servs.

McDONALD, Justice (concurring in part, dissenting in part).

      For the reasons set forth in my separate opinion in Endress v. Iowa

Department of Human Services, ___ N.W.2d ___, ___ (Iowa 2020) (McDonald,

J., concurring in part and dissenting in part), I concur in part and dissent

in part. I would affirm the judgment of the district court in all respects.

      Oxley and McDermott, JJ., join this concurrence in part and dissent

in part.