After losing federal grant to house migrant children, NC group home sues state health regulators

The North Carolina group home company that lost a multi-million-dollar federal grant to house migrant children after it failed to secure proper licensing is suing the state health department in federal court.

In its 38-page complaint, filed Aug. 18 against the Department of Health and Human Services, New Horizon Group Home accuses state regulators of "outrageous violations" of the company's rights that ultimately led to the loss of a multi-year federal grant awarded in 2019 by the Administration for Children and Families. Federal officials are now demanding the company pay back about $3 million of that grant money.

The suit also takes aim at reporting by WRAL News, which first revealed in July 2019 that New Horizon received the grant without a residential child care facility license, required by state and federal officials to house migrant children under the terms of the award. Although WRAL isn't named as a defendant in the lawsuit, the complaint accuses the news organization of parroting false statements from DHHS and "false, negligent and shoddy reporting" that undermined the company's reputation and "likely contributed to the ultimate withdrawal of the ACF Grant."

"WRAL has spent more a year covering New Horizon's grant from the federal government and has given New Horizon and its CEO, Barbara Brockington, multiple opportunities to respond to questions. WRAL stands by its reporting," WRAL News Director Rick Gall said in a statement.

In 2018, state regulators abruptly shut down one of New Horizon's multiple mental health facilities over allegations of serious abuse and neglect, saying conditions presented “an imminent danger to the health, safety and welfare” of the boys housed there.

Barely a year later, the federal government awarded the company a grant under a cooperative agreement to house migrant children separated from their families or detained crossing the border alone. The grant's total value for the first year was nearly $8 million, half of which was available to the company starting in early 2019.

But after North Carolina regulators denied New Horizon's application for a residential childcare license needed to house the children at a planned complex in Laurinburg, federal officials halted the second half of the payout and formally canceled the company's grant in early 2020. In a letter to the company in June, the Administration for Children and Families outlined more than $3 million in unallowable spending the agency is now requiring New Horizon to repay.

New Horizon has appealed both the 2018 shutdown of its mental health facility and the federal government's decision to claw back the grant money. Both efforts are pending.

DHHS spokeswoman Sarah Lewis Peel said the agency had no comment on the lawsuit.

New Horizon's attorney, Brandon Neuman, declined to comment beyond the filing. And the company's chief executive, Barbara Brockington, did not respond to a phone call or an email seeking comment.

A 'miscarriage of justice'

The core issue of the lawsuit filed in late August is a dispute between New Horizon and the DHHS Division of Health Service Regulation over four licenses the company held for years that allowed them to provide mental health treatment for children and adults at residential and outpatient facilities across the state.

New Horizon says it submitted renewal applications for 2019 to DHHS for those licenses well ahead of the deadline in 2018 and began following up with the agency in early 2019 when the company received no response. Days later, regulators terminated the company's licenses for failing to recertify.

The company appealed to the Office of Administrative Hearings, which reversed the termination of the four licenses. In his opinion, Administrative Law Judge Donald Overby wrote that New Horizon made a good faith effort to renew the licenses and that it "would be a miscarriage of justice" to revoke them.

That decision came down in August 2019. But it took DHHS three months to restore New Horizon's four licenses, a delay the lawsuit says "legally prohibited New Horizon from operating any of its treatment facilities associated with those licenses for nearly all of 2019."

Overby did not, however, overturn state regulators' decision to fine the company and shut down its Lumber Bridge facility, which held a fifth license to treat more serious mental illness in a residential setting classified as Level IV.

"This facility was inadequately and wholly ill-prepared to accept and treat these clients with Level IV needs," Overby wrote in his decision. "It is noted that this Facility had only been open a very short period of time and would have passed the inspections and requirements to open but failed miserably once the clients were admitted."

A state investigator found that the seven boys at the facility spent most of the day inside watching TV and playing video games. Her evidence showed one staff member pinned a boy against a wall and choked him and that a 9-year-old was left alone in an unapproved "time-out" room the size of a janitor's closet.

In the lawsuit against DHHS, New Horizon disputes those claims, calling the penalties against the company "severe and draconian." The complaint also cites an interview from a county social services worker who concluded that, "I don't think we will be able to substantiate anything around the abuse."

State regulations require DHHS to deny applications for residential childcare licenses if their operators have racked up severe violations or penalties within the previous year and a half. And when the agency denied New Horizon's childcare license in late July, regulators pointed to the problems at Lumber Bridge as the rationale.

But New Horizon contends in its lawsuit that the residential childcare facility license was only a "contingency."

Instead, the company planned to use a residential mental health license – one of the four it says were wrongfully withheld by the state – to comply with the terms of the ACF grant, shifting its operations to what it called a "consolidated expansion facility."

Although federal officials extended the company's original 75-day deadline to demonstrate proper licensure, eventually their patience wore out.

"As a result of DHSR’s wrongful deprivation, and delayed reinstatement, of the Level III License, New Horizon was unable to comply with the licensure requirement of the (ACF) Grant, resulting in the forfeiture of that grant and its millions of dollars of associated funding," the lawsuit says.

Documents show 'disallowed' spending

In addition to canceling the grant, however, the federal government is also requiring New Horizon to pay back $3.1 million in funds ACF officials say were misspent.

A June letter to the company details exactly how that figure adds up.

A week after the company received its notice of the award in May 2019, federal officials say New Horizon drew down the entirety of their initial payment for the first six months of the grant: more than $3.98 million. That earned a rebuke from ACF grants management officer Karen Code, who wrote that the company "should not have drawn down funds that exceeded their immediate need."

Of that amount, the ACF grant officer wrote that the company failed to account for more than $800,000 in its required documentation to the federal agency, all of which the company must pay back.

ACF says New Horizon also violated federal rules by reporting that it spent the full amount of the grant by June 30, 2019. That claim, federal officials say, conflicted with subsequent documentation submitted later that year.

The $3.1 million New Horizon did document included $380,000 worth of unapproved upgrades – new gutters, playground equipment, fencing and cable installation – at a former Scotland County nursing home the company planned to upfit for housing migrant children.

Separately, ACF officials tallied up about $1.7 million in unallowable charges. Most of that amount went to the lease for the Laurinburg facility, which required down payments and more than $15,000 a month in rent, taxes and fees.

"ACF entered into a cooperative agreement with New Horizons to incur expenditures on behalf of the agency with the understanding and intent that New Horizon would be capable of (securing a state license) providing the agreed-upon services (care of the children placed at that facility by ACF)," agency regulators wrote.

New Horizon reported paying out more than $520,000 for "personnel" and "fringe benefits" in 2019, only about $120,000 of which was allowed.

Among the other unallowable or unsupported spending:

• More than $40,000 to a company called Telesis Systems for cloud migration and IT services. Maryland corporation records show Telesis Systems is helmed by Lewis Smith, who is also listed in federal records as the New Horizon grant's "principal investigator."
• More than $50,000 for Microsoft Office 365, which ACF says isn't supported because New Horizon provided only an estimate in its documentation.
• $160,000 to PDS Corp., for which New Horizon "provided only a description that this was an estimate."

In July, New Horizon appealed the demand to pay back the money, saying the federal decision "is wrong because it relies on erroneous application of pertinent regulatory authority and fails to account for Petitioner's reliance on both guidance form the agency and conflicting grant requirements."

The decision is currently pending before a U.S. Department of Health and Human Services appeals board.