United States of America v. State of North Carolina

Filing 29

ORDER granting in part and denying in part 15 Motion to Enforce Settlement Agreement (D.E. 2-2). The parties shall negotiate in good faith and file any agreed-to modifications by October 27,2017. Signed by Chief Judge James C. Dever III on 9/21/2017. (Briggeman, N.)

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF NORTH CAROLINA
WESTERN DIVISION
5:12-CV-557-D

UNITED STATES OF AMERICA,

Plaintiff,

v.
STATE OF NORTH CAROLINA,
Defendant.

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ORDER

On August 23, 2012, the United States of America sued the State of North Carolina (''the
State") over alleged violations ofTitle II of the Americans with Disabilities Act, 42 U.S. C.§ 12132,
Title IT's implementing regulations, Section 504 of the Rehabilitation Act, 29 U.S.C. § 794, and
Section 504's implementing regulations [D.E. 1]. That same day, the parties jointly moved to
dismiss the case and for the court to retain jurisdiction to enforce a settlement agreement the parties
had executed [D.E. 2]. On October 5, 2012, the court granted the motion to dismiss and retained
jurisdiction to enforce the settlement agreement [D.E. 13].
On January 9, 2017, the United States moved to enforce the settlement agreement [D.E. 15].
On March 1, 2017, the State responded in opposition [D.E. 23]. On March 22, 2017, the United
States replied [D.E. 25]. As explained below, the court grants the United States' motion in part and
denies it in part.

I.
The Americans with Disabilities Act ("ADA") prohibits public entities-such as North
Carolina-from discriminating against individuals with disabilities. "[N]o qualified individual with

a disability shall, by reason of such disability, be excluded from participation in or be denied the
benefits of the services, programs, or activities of a public entity, or be subjected to discrimination
by any such entity." 42 U.S.C. § 12132. 1 Congress directed the Attorney General to issue
regulations implementing this discrimination proscription. See id. § 12134(a). One of the ADA's
implementing regulations, called the "integration regulation," requires public entities ''to administer
services, programs, and activities in the most integrated setting appropriate to the needs of qualified
individuals with disabilities." 28 C.F .R. § 3 5.130(d). "[T]he most integrated setting appropriate to
the needs of qualified individuals with disabilities" means "a setting that enables individuals with
disabilities to interact with non-disabled persons to the fullest extent possible." 28 CFR pt. 35, app.

B. The integration regulation recognizes ''that unjustified placement or retention of persons in
institutions, severely limiting their exposure to the outside community, constitutes a form of
discrimination based on disability prohibited by Title II." Olmstead v. L. C. ex rei. Zimring, 527 U.S.
581, 596 (1999).
On November 17, 2010, the United States began investigating North Carolina's mentalhealth-service system for compliance with Title II. See [D.E. 15-3] 4. Before the investigation, the
State relied heavily on adult-care homes in administering its mental-health-service system. See
Compl. [D.E. 1] ,, 23, 26. Adult-care homes "provide room and board, housekeeping, and personal
care services for two or more unrelated adults." ld. , 22. The facilities are not, however, designed
to serve their residents' mental-health needs. See id. North Carolina's adult-care homes isolated
residents-"a significant percentage ofwhom have diagnoses ofmental illness"-from nondisabled

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The United States also brought a claim under Section 504 of the Rehabilitation Act, 29
U.S.C. § 794(a). Title II and Section 504 share the same integration requirements, and courts
analyze them together. See Pashby v. Deli!!, 709 F.3d 307, 321 (4th Cir. 2013).

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persons. Id. W31, 36. Several reports from North Carolina agencies acknowledged that adult-care
homes fell short of integrating disabled persons into the community. See id. ~~ 37-38.
On July 28, 2011, the United States sent North Carolina's Attorney General Roy Cooper a
letter detailing the investigation's findings. See [D.E. 15-3]. The United States concluded that
North Carolina "fails to provide services to individuals with mental illness in the most integrated
setting appropriate to their needs in violation of the ADA." ld. at 2. Specifically, North Carolina
"plans, administers, and funds its mental health service system in a manner that unnecessarily
segregates persons with mental illness in institutional adult care homes, rather than providing
services to them in community-based settings." Id. at 6. As the Supreme Court has held, the
"unjustified institutional isolation ofpersons with disabilities is a form ofdiscrimination" prohibited
under Title IT. Olmstead, 527 U.S. at 600. Title IT and its integration regulation requires states
to provide community-based treatment for persons with mental disabilities when the
State's treatment professionals determine that such placement is appropriate, the
affected persons do not oppose such treatment, and the placement can be reasonably
accommodated, taking into account the resources available to the State and the needs
of others with mental disabilities.
Id. at 607. According to the United States, North Carolina's use of adult-care homes violated the
ADA and Olmstead. See [D.E. 15-3] 7.
After the State received the letter detailing the investigation's findings, the parties exchanged
proposals for resolving the identified deficiencies. See Compl.

~

51. illtimately, the parties

executed a settlement agreement that includes certain remedial measures. See id.; [D.E. 2-2]. The
measures aim ''to provide adequate and appropriate public services and supports ... in the most
integrated setting appropriate to meet the needs" of individuals with serious mental illness ''who are
in or at risk of entry to an adult care home." [D.E. 2-2] § ill(A). Two provisions concerning housing
and employment are relevant here.

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The settlement agreement requires the State to "develop and implement measures to provide
individuals ... access to community-based supported housing." Id. § III(B)(1 ). Community-based
supported housing enables residents to attain and maintain affordable housing that integrates them
with the community to permit "individuals with disabilities to interact with individuals without
disabilities to the fullest extent possible." Id. § III(B)(7)(c). Under the settlement agreement, by July
1, 2020, the State must increase its capacity for supported housing by "provid[ing] access to 3,000
Housing Slots." Id. § III(B)(3). "Housing Slots" are "State or federal housing vouchers and/or rental
subsidies for community-based supported housing" that include "a package of tenancy support,
transition support[,] and rental support." ld. § II(A). In short, supported housing slots combine
permanent housing that includes tenancy rights with tenancy support services ''that enable residents
to attain and maintain integrated, affordable housing." ld. § III(B)(7)(b). The settlement agreement
establishes annual, incremental obligations for the number of such housing slots the State must
provide. See id. § III(B)(3). By July 1, 2016, the State was required to provide such housing slots

"to at least 1,166 individuals." Id. § III(B)(3)(d).
The settlement agreement also requires the State to provide "Supported Employment
Services" to individuals with serious mental illness ''who are in or at risk of entry to an adult care
home." ld. § III(D)(1). "Supported employment services" are "services that will assist individuals
in preparing for, identifying, and maintaining integrated, paid, competitive employment." Id. Again,
the settlement agreement establishes annual, incremental obligations dictating the pace at which the
State must increase its capacity to provide supported employment services. See id. § III(D)(3). By
July 1, 2016, the State was required to provide supported employment services ''to a total of 1,166
individuals." Id.

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II.
According to the United States, as of July 1, 2016, the State failed to meet its obligations
under the settlement agreement. The State had provided only 650 ofthe required 1,166 housing slots
and provided supported employment services to only 708 of the required 1,166 individuals. See
[D.E. 15-19] 3, 8.
As for the events leading to the States' alleged failure, in April 2014, the State began
providing monthly reports on its progress toward compliance with the settlement agreement's
housing and employment-services requirements. See [D.E. 15-1] 11 n.5. In the monthly reports for
April, May, June, and July of2014, the State reported its compliance with its obligations to provide
certain numbers of housing slots by counting the number of individuals "in housing with confirmed
lease," i.e., by counting only occupied housing slots. See [D.E. 15-7] 2, 6 (April2014 monthly
report); [D.E. 15-6] 2, 5 (May 2014 monthly report); [D.E. 15-5] 2, 9 (June 2014 monthly report);
[D.E. 15-4] 3, 6 (July 2014 monthly report). Beginning with the August 2014 monthly report, in
addition to the occupied housing slots the State displayed a column labeled ''total." See [D.E. 15-8]
4. According to the United States, the ''total" column represented the total number of occupied and
vacant housing slots, the latter being housing slots yet to be reassigned after the former tenant left.
See [D.E. 15-1] 12 & n.6. Starting with the January 2015 report, the State measured compliance by
referencing the combined number of occupied and vacated housing slots. See [D.E. 15-9] 3.
On March 17, 2015, the United States advised the State that the federal government disagreed
with the State's interpretation ofhowto measure compliance with the supported-housing provisions.
See [D.E. 15-1 0] 3-4. The United States noted the State's position as being that "[c]ompliance with
the supported housing obligations should be measured against the gross number of people who have
ever transitioned into supported housing under the Settlement Agreement, regardless ofwhether they

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left supported housing, when they left, what services and supports they received while in supported
housing, or why they left." Id. at 3. According to the United States, "[c]ompliance with the
supported housing provisions ofthe Settlement Agreement is measured by examining the net number
of people in supported housing on the given compliance dates." Id.
On June 29, 2015, the State responded. See [D.E. 15-11]. The State "disagree[d) with
counting only the 'net' number of individuals in housing slots on a certain date." Id. at 3. Instead,
the State contended that "[i]f the individual enters into a qualifying residence, and has tenancy
support, transition support and rental support, that individual has been provided a Housing Slot, and
counts towards the numeric goal," even ifthe individual later vacates the slot. Id. On May 27, 2016,
the State reiterated this position in a letter: "[T]he State will continue to report (currently monthly)
the number of individuals in the priority populations who have been provided housing slots over the
course of the settlement as well as the number of individuals currently housed at the end of the time
period." [D.E. 15-12] 3.
The State's interpretation ofcompliance with the settlement agreement's employment-service
requirements also shifted over time. During the settlement agreement's first three years, the State
reported compliance as the number of individuals in the target population-individuals with mental
illness who are in or at risk of entry to an adult care home-receiving supported employment
services on the reporting dates. See,~' [D.E. 15-24] 2 (2014 annual report). Although the State
acknowledged that it provides employment services to individuals outside the target population, it
did not count those individuals. See, ~' [D.E. 15-25] 3 (Dec. 2014 monthly report); [D.E. 15-26]
3 (20 14 Annual Report). Indeed, in June and July 2015 the State did not report compliance because
the State was "assess[ing] if all individuals reported [met] the in or at risk definition for supported
employment." [D.E. 15-27] 3 (July2015 monthly report); [D.E. 15-13] 3. The October2014report

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stated that ''the State is conducting onsite Supported Employment reviews to make sure the people
met the definition of 'in or at risk of entry to an adult care home' as laid out in the settlement." [D.E.
15-28] 3 (Oct. 2014 monthly report). The State later changed course and began measuring
compliance by counting anyone receiving supported employment services, regardless ofwhether the
person was in the target population. See [D.E. 15-12] 3-4.

m.
The United States moves to enforce the settlement agreement. According to the United
States, the State misconstrues its housing and employment-services obligations by misinterpreting
how to measure compliance with these obligations. The United States contends that the housing
obligation requires the State to count only individuals residing in permanent supported housing as
of the reporting date, and that the employment-services obligation requires the State to count only
those individuals within the target population who received supported employment services.
The court has jurisdiction to enforce the settlement agreement. See Kokkonen v. Guardian
Life Ins. Co. ofAm., 511 U.S. 375,381 (1994); Columbus-Am.DiscoveryGr;p. v.AtlanticMut.Ins.
Co., 203 F.3d 291,299 (4th Cir. 2000). Nonetheless, the State initially argues that the court cannot
resolve the United States' motion to enforce because the United States ignored the settlement
agreement's dispute-resolution provisions before filing its motion.
The settlement agreement includes procedures for resolving disputes about the State's
compliance. Before involving the court, if the United States thinks the State is noncompliant, the
United States must notify the State in writing ofthe alleged noncompliance and ask the State to take
corrective action. See [D.E. 2-2] § V(F). The State has 45 days to respond by denying the
noncompliance or accepting the allegation and proposing corrective action. See id. If the State
proposes corrective action, the United States "may accept the State's proposal or offer a
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counterproposal for a different curative action or deadline." Id. § V(G). If the parties fail to reach
an agreement, the United States "may seek an appropriate judicial remedy." ld.
The United States followed this procedure. After the parties failed to resolve the issues, on
November 6, 2015, the United States formally requested a corrective-action plan under section V(F).
See [D.E. 15-15]. On December 22,2015, the State responded with a proposed corrective-action
plan. See [D.E. 15-16]; [D.E. 23-5]. OnMarch24, 2016, the United States identified shortcomings
in the State's plan and made recommendations to the State concerning effective corrective action.
See [D.E. 15-17]. These steps exhausted the United States' obligations under the settlement
agreement and permitted the United States to "seek an appropriate judicial remedy." Thus, the court
addresses the United States' motion to enforce the settlement agreement.
IV.
"[A] motion to enforce a settlement agreement draws on standard contract principles."
Hensley v. Alcon Labs .• Inc., 277 F .3d 535, 540 (4th Cir. 2002). Here, federal common law supplies
these principles. See Gamewell Mfg .. Inc. v. HVAC Suwly. Inc., 715 F.2d 112, 115-16 (4th Cir.
1983); Washington v. Hartford Life &Accident Ins. Co., No. 5:16-CV-173-BO, 2017 WL2930579,
at *1 (E.D.N.C. July 6, 2017) (unpublished). The court seeks to discern the parties' intent at the
time they made the agreement. Intent is derived not from a particular contractual term but from the
contract as a whole. See, e.g., Johnson v. Am. United Life Ins. Co., 716 F.3d 813, 820 (4th Cir.
2013). The subject matter and purpose of the contract help discern the parties' intent. See id.
Courts also must consider evidence of the parties' own interpretation of the contract before the
controversy arose.

The parties' own interpretation of the settlement agreement's terms, as

demonstrated by how the parties carried out its terms after its execution, offers compelling evidence
of the parties' intent. See,~' Mgmt. Sys. Assocs., Inc. v. McDonnell Douglas Cor;p., 762 F.2d

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1161, 1171-72 (4th Cir. 1985).
This dispute concerns how the parties intended to measure the State's compliance with the
settlement agreement's housing and employment-services provisions. As for housing, the United
States contends that compliance requires counting only occupied housing slots as of the reporting
date, while the State relies on the number ofhousing slots that are both currently occupied and were
occupied at one point during the reporting period. As for employment services, the United States
argues that the number of individuals in the target population receiving supported employment
services governs, while the State claims it can count all individuals receiving those services,
regardless of whether the individual was within the settlement agreement's target population.

A.
Section ill(B)(3) governs the State's housing obligations. In light of the text, the purpose of
the settlement agreement, and the parties' initial interpretation ofthe settlement agreement, the court
concludes that the parties intended to measure compliance by counting only occupied housing slots
as of the reporting date. Through the settlement agreement, the parties "intend[ed] that the goals of
community integration and self determination will be achieved." [D.E. 2-2] § I(C). The agreement's
"intended outcomes" were "increased integration, stable integrated housing, and decreased
hospitalization and institutionalization." Id. § ill(G)(7). To achieve these intended outcomes,
section ill(B)(3) obligates the State to meet provide an additional458 or 459 housing slots each year
from the second year of the agreement until its conclusion:
3.

The State will provide access to 3,000 Housing Slots in accordance with the
following schedule:
a. By July 1, 2013 the State will provide Housing Slots to at least 100 and up
to 300 individuals.

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b. By July 1, 2014 the State will provide Housing Slots to at least 150
additional individuals.
c. By July 1, 2015 the State will provide Housing Slots to at least 708
individuals.
d. By July 1, 2016 the State will provide Housing Slots to at least 1,166
individuals.
e. By July 1, 2017 the State will provide Housing Slots to at least 1,624
individuals.
f. By July 1, 2018 the State will provide Housing Slots to at least 2,082
individuals.
g. By July 1, 2019 the State will provide Housing Slots to at least 2,541
individuals.
h. By July 1, 2020 the State will provide Housing Slots to at least 3,000
individuals.
To achieve the settlement agreement's stated purpose of increasing community integration, this
provision imposes an obligation concerning occupied housing slots as ofthe compliance date. Only
by building its community-based housing capacity year over year can the State hope to create a
system of community integration that remedies the deficiencies that the initial investigation
identified.
This reading of section III(B)(3) comports most closely with the parties' intent. Consider the
implications of the State's proposed interpretation. The State reads section III(B)(3) as measuring
compliance "by reference to the running, cumulative total number of individuals the State has
transitioned to Housing Slots overtime." [D.E. 23] 16-17. As the United States notes, "[t]aken to
its logical extreme, North Carolina's position could result in a 'compliant' system in which no one
resides in supported housing by the Agreement's end." [D.E. 25] 4. Indeed, under the State's reading
it would not matter if every individual who received a housing slot immediately abandoned it and

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moved back into an adult home care-the exact problem the parties sought to remedy. On July 1,
2020, the status quo could match that which precipitated the settlement agreement in the first place,
yet the State could claim that it achieved the settlement agreement's intent. The State's position, if
accepted, could eviscerate the settlement agreement. Only by measu.rj.ng compliance by counting
the housing slots actually occupied on the reporting date could the parties expect to achieve the
systemic change needed to accomplish the settlement agreement's purpose-providing meaningful
community-based alternatives to segregated adult-care homes.
The parties' course of conduct after they executed the settlement agreement confirms this
interpretationoftheparties' intent. lnApril2014, the State beganprovidingmonthlyreports. In the
April, May, June, and July 2014 monthly reports, the State reported compliance by referencing the
number of individuals actually in housing as of the reporting date. Even before it began filing
monthly reports, the State reported compliance the same way. See [D.E. 15-22] 6 (first year'
summary); [D.E. 15-23] 2 (update as of Jan. 6, 2014). The Independent Reviewer also reported the
State's compliance in terms of how many individuals actually occupied housing slots on the
reporting date. See [D.E. 23-9] 29 (Oct. 1, 2016 report) (stating that the State's current pace would
"not result in 3,000 slots in use at the time the Agreement is setto expire"); [D.E. 23-4]10 (Oct. 14,
2015 report) ("Filling the exact number of slots as required in this Agreement or in any housing
program requires refilling a substantial number of Housing Slots that are vacated over the course of
eight years."). This post-agreement course of conduct confirms the parties' intent to measure
compliance by counting the number of occupied housing slots, regardless of turnover.
The settlement agreement's purposes and the parties' interpretation of the settlement
agreement's requirements reveal the parties' intent to measure compliance by reference to the
number of housing slots actually occupied on the reporting date. As of the July 1, 2016 reporting
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date, the State was providing housing slots to only 650 of the required 1,166 individuals-56% of
the expected capacity. Thus, the State was not in substantial compliance with its July 1, 2016
obligations. See [D.E. 2-2] § V(B) ("Substantial compliance is achieved if any violations of the
Agreement are minor and occasional and are not systemic.").

B.
Section ITI(D) governs the State's employment-services obligation. Again, in light of the
text, the purpose of the settlement agreement, and the parties' initial interpretation of the settlement
agreement, the court concludes that the parties intended to measure compliance with section ITI(D)
by counting only individuals in the target population who received supported employment services.
Section ITI(D) contains three paragraphs. The first paragraph identifies the subsection's objective:
"The State will develop and implement measures to provide Supported Employment Services to
individuals with SMI, who are in or at risk of entry to an adult care home, that meet their
individualized needs." [D.E. 2-2] § ITI(D)(1). The second paragraph ensures the quality of those
services: "Supported Employment Services will be provided with fidelity to an evidence-based
supported employment model for supporting people in their pursuit and maintenance of integrated,
paid, competitive work opportunities." Id. § ITI(D)(2). The third paragraph dictates the timeline for
the State to provide those services:

"[B]y July 1, 2016, the State will provide Supported

Employment Services to a total of 1,166 individuals." ld. § ITI(D)(3). When read in conjunction
with section ITI(D)(1 ), section ITI(D)(3 )' s reference to "individuals" refers to "individuals with SMI,
who are in or at risk of entry to an adult care home." Thus, the parties intended to measure
compliance with section ITI(D)(3) by counting only individuals in this target population.
This reading comports with the settlement agreement's stated purpose of serving ''the needs
of individuals with SMI, who are in or at risk of entry to an adult care home." Id. § ITI(A).
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Conversely, the State's interpretation ignores the settlement agreement's text and purpose. Under
the State's reading, it could claim compliance with the employment-services provision even if it did
not provide those services to a single individual in the population the settlement agreement aims to
help.
As with the housing provision, the parties' post-agreement course of conduct concerning the
State's employment-services obligation confirms the United States' reading. During the settlement
agreement's first three years, the State reported compliance as the number ofindividuals with mental
illness who are in or at risk of entry to an adult care home who were receiving supported employment
services on the reporting dates. Several times the State chose not to report compliance because the
State was "assess[ing] if all individuals reported [met] the in or at risk definition for supported
employment." [D.E. 15-27] 3 (July2015 monthly report); [D.E. 15-13] 3. In fact, the October2014
report embraced the reading the State now disavows: "[T]he State is conducting onsite Supported
Employment reviews to make sure the people met the definition of 'in or at risk of entry to an adult
care home' as laid out in the settlement." [D.E. 15-28] 3 (Oct. 2014 monthly report). The
Independent Reviewer also evaluated the State's compliance in terms of the target population. See
[D.E. 23-9] 57 (Oct. 1, 2016 report). This post-agreement course of conduct confirms that the parties
intended to measure compliance by counting only those individuals within the target population to
whom the State provided supported employment services.
The settlement agreement's text and the parties' course of conduct immediately following
its execution reveal the parties' intent to measure compliance with section III(D)(3) by reference to
individuals within the target population. As of July 1, 2016, only 708 individuals from the target
population of the required 1,166 received supported employment services-61% of the expected
number. Thus, the State was not in substantial compliance with its July 1, 2016 obligations.
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v.
As a remedy for the State's noncompliance with its July 1, 2016 obligations under sections

ll(B)(3) and ill(D)(3) of the settlement agreement, the United States requests specific enforcement
pursuant to schedule of revised monthly obligations. See [D.E. 15-1] 29-30, 32-33. In opposition,
the State contends that the settlement agreement prevents the court from modifying the timeline for
the State to comply with its obligations. In support, the State cites section V(H):
Any modification of this Settlement Agreement must be consented to by the Parties,
shall be executed in writing by the Parties, shall be filed with the Court, and shall not
be effective until the Court enters the modified agreement and retains jurisdiction to
enforce it.
[D.E. 2-2] § V(H).
The court need not conclusively determine the meaning of section V(H). Instead, the court
will give the parties an opportunity to negotiate in good faith and reach an agreement concerning any
modified timeline in light of the court's conclusions concerning sections ill(B)(3) and ill(D). The
parties shall file any agreed-to modifications with the court by October 27,2017.
VI.

In sum, the court GRANTS IN PART and DENIES IN PART the United States' motion to
enforce the settlement agreement [D.E. 15]. Compliance with section ill(B)(3) of the settlement
agreement is measured by counting the number of occupied housing slots on the relevant
compliance dates. Compliance with section ill(D) of the settlement agreement is measured by
counting the number of individuals with serious mental illness in or at risk of entry to an adult care
home who received supported employment services. Thus, North Carolina failed to substantially
comply with its July 1, 2016 obligations under sections ill(B)(3) and ill(D). The parties shall
negotiate in good faith and file any agreed-to modifications by October 27,2017.

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SO ORDERED. This..&_ day of September 2017.

J
S C. DEVER III
Chief United States District Judge

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