Golden Day Schools, Inc. v. Office of Administrative Hearings
8 Cal. App. 5th 1012
| Cal. Ct. App. | 2017Background
- Golden Day Schools, a nonprofit childcare contractor, received state Advance payments under direct service contracts for FY 2006–2007 and 2007–2008 and submitted independent annual financial and compliance audits as required by Ed. Code § 8448.
- The California Department of Education (Department) performed a Limited Scope Review (performance/contract audit) for July 1, 2006–June 30, 2008, and identified nine findings seeking recoupment of $3,257,732 for alleged improper charges.
- Key factual features: Golden Day leased sites from Parkers and subleased classrooms to Today’s Fresh Start charter school (operated by a Parker family member); both entities used the same site sign-in sheets and had overlapping hours at some sites.
- Administrative Law Judge (ALJ) sustained several Department findings (including commingling of eligible/noneligible children, dual-payroll charges, and multiple nonreimbursable expenses) and disallowed amounts; Golden Day petitioned for writ of administrative mandamus; trial court affirmed except on one lease/rental finding.
- Appeal and cross-appeal: Golden Day argued the Department was barred from conducting its performance audit after accepting Golden Day’s independent audits and challenged three specific recoupments; Department cross-appealed the trial court’s reversal of the related-party rent disallowance.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Dept. was precluded from conducting a contract performance audit after accepting Golden Day’s independent financial and compliance audits | Dept. acceptance and closure of Golden Day’s audits barred any further audit or recoupment | Statute/regulations allow Dept. to conduct contract performance audits and recoup improper payments even after accepting contractor audits | Dept. may conduct performance audits after accepting independent audits; statutory/regulatory scheme permits recoupment |
| Commingling of eligible and noneligible children (Finding No. 2) | Sign‑in/out sheets were site‑wide and do not prove commingling in classrooms; evidence insufficient | Field visit observations, family files, and audit records supported finding of noncertified children commingled and charged to program | Substantial evidence supports disallowance of 17,793 days for commingled/noneligible children |
| Dual payroll charges for employees also working at Today’s Fresh Start (Finding No. 4) | Golden Day did not operate multiple programs; timecards suffice; no obligation to obtain charter payroll records | Overlapping schedules, tax filings, Bell schedules, and refusal/proof gaps meant payroll was not shown to be properly allocated | Substantial evidence supports disallowance of $930,657 in payroll costs for dual employees |
| Nonreimbursable and unreasonable expenditures (Finding No. 6) | Department should defer to Golden Day’s business judgment about necessary costs; independent audit acceptance ratified costs | Regulations define reimbursable costs and place burden on contractor to justify reasonableness and necessity; many items were personal/unsupported | ALJ and trial court correctly sustained most nonreimbursable disallowances; Golden Day failed its burden |
| Related‑party lease/rental increases (Finding No. 5; cross‑appeal) | Single prior appraisal (2001) and automatic escalation clause mean no new appraisal/transaction required annually; trial court reversed ALJ on this point | Funding terms require related‑party transactions (including rental increases charged each fiscal year) be shown fair and reasonable; annual increases require support | Court reverses trial court: ALJ correct that Golden Day failed to show reasonableness of post‑2001 rental increases; Dept entitled to recoup amounts above 2001 appraisal |
Key Cases Cited
- Golden Day Schools, Inc. v. Department of Education, 69 Cal. App. 4th 681 (discussing Dept. authority to perform contract‑specific audits)
- JKH Enters., Inc. v. Dep’t of Industrial Relations, 142 Cal. App. 4th 1046 (substantial‑evidence review standard for administrative findings)
- Pacific Coast Med. Enters. v. Dep’t of Benefit Payments, 140 Cal. App. 3d 197 (administrative review principles)
- Schnyder v. State Bd. of Equalization, 101 Cal. App. 4th 538 (statutory interpretation principles)
- In re Richards, 16 Cal. App. 4th 93 (construction of statutes and regulations)
- Dept. of Fish & Game v. Anderson‑Cottonwood Irrigation Dist., 8 Cal. App. 4th 1554 (use of statutory context in interpretation)
- Lamden v. La Jolla Shores Clubdominium Homeowners Assn., 21 Cal. 4th 249 (limits of deference to entity business judgment)
- Lentz v. McMahon, 49 Cal. 3d 393 (estoppel against government and public‑interest balancing)
- City of Fresno v. Cal. Highway Com., 118 Cal. App. 3d 687 (estoppel principles and government policy)
- County of San Diego v. Cal. Water Etc. Co., 30 Cal. 2d 817 (statutory procedures limit estoppel)