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.
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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.
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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
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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
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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.
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#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.