763 F.2d 1441 (D.C. Cir. 1985), 83-2344, Maryland Dept. of Human Resources v. Department of Health and Human Services

Docket Nº:83-2344.
Citation:763 F.2d 1441
Party Name:MARYLAND DEPARTMENT OF HUMAN RESOURCES, et al., Appellants, v. DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al.
Case Date:June 07, 1985
Court:United States Courts of Appeals, Court of Appeals for the District of Columbia Circuit
 
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763 F.2d 1441 (D.C. Cir. 1985)

MARYLAND DEPARTMENT OF HUMAN RESOURCES, et al., Appellants,

v.

DEPARTMENT OF HEALTH AND HUMAN SERVICES, et al.

No. 83-2344.

United States Court of Appeals, District of Columbia Circuit

June 7, 1985

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Argued Nov. 19, 1984.

Ralph S. Tyler, III, Baltimore, Md., for appellants.

Mitchell R. Berger, Asst. U.S. Atty., Washington, D.C., with whom Joseph E. diGenova, U.S. Atty., Royce C. Lamberth and R. Craig Lawrence, Asst. U.S. Attys., Washington, D.C., were on the brief, for appellees.

Before WALD, EDWARDS and BORK, Circuit Judges.

Opinion for the Court filed by Circuit Judge BORK.

BORK, Circuit Judge:

The Maryland Department of Human Resources ("Maryland" or "MDHR") appeals from a district court order upholding a final decision by the Department of Health and Human Services ("HHS"). HHS determined that Maryland, during 1977 and 1978, misspent $207,350 in federal grant monies received pursuant to Title XX of the Social Security Act. That Act, until amended in 1981, provided federal grants-in-aid to participating states to reimburse them for funds spent in providing social services to low-income individuals, including expenditures that related to training social services personnel. 42 U.S.C. Secs. 1397-1397f (1976). HHS "disallowed a total of $207,350 of Federal Financial Participation (FFP) for the Title XX Training Program," and directed Maryland to "report the amount of this allowance on line 10B of form SRS-OA41 for the quarter ended September 30, 1982." Letter from HHS Regional Administrator Eileen Bradley to MDHR Secretary Kalman R. Hettleman (Oct. 25, 1982) [hereinafter cited as Bradley Letter], J.A. at 46.

The first issue in this case is easily stated. Maryland claims that the determination that it misspent $207,350 is erroneous. In Part III of this opinion, we reject that claim and affirm the district court's decision in this respect.

The second, third, and fourth issues all presuppose that Maryland in fact misspent federal funds. The questions that then arise are (1) whether HHS has a right to recover; (2) assuming HHS has such a right, what remedies are available to enforce that right; and (3) whether the question of remedies was decided by HHS's final order and so was properly before the district court. We consider these issues in Part IV, and conclude that HHS has a right of recovery, that HHS is authorized to withhold funds, and that the issue of withholding as a remedy was properly before the district court.

I.

The Title XX grant-in-aid program defined training expenses for social services personnel to include "training at educational institutions through grants to such institutions

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or by direct financial assistance to students enrolled in such institutions." 42 U.S.C. Sec. 1397a(a)(1) (1976). Under regulations promulgated by HHS to implement Title XX, states wishing to receive this training subsidy were required, inter alia, to select the students to be trained, to approve the training programs themselves, and to ensure that student trainees were legally obliged to work for a state social services agency after completing their training (provided employment was offered). 45 C.F.R. Sec. 228.83(a)(2)(i), (ii), (iii) (1977). The states were required to make the employment obligation effective by offering trainees employment within six months after they completed their training, "unless precluded by Merit System requirements, legislative cuts, position freezes, or other circumstances beyond the agency's control." 45 C.F.R. Sec. 228.83(b)(1) (1977).

Title XX contained the following provision dealing with funds spent by a state in violation of Title XX funding conditions:

(1) Prior to the beginning of each quarter the Secretary shall estimate the amount to which a State will be entitled under this section for that quarter on the basis of a report filed by the State containing its estimate of the amount to be expended during that quarter with respect to which payment must be made under this section, together with an explanation of the bases for that estimate.

(2) The Secretary shall then pay to the State, in such installments as he may determine, the amount so estimated, reduced or increased to the extent of any overpayment or underpayment which the Secretary determines was made under this section to the State for any prior quarter and with respect to which adjustment has not already been made under this subsection.

42 U.S.C. Sec. 1397a(b) (1976).

Effective October 1, 1981, Congress amended Title XX to provide for block grants to participating states for social services. The block grants were in lieu of the specific grants-in-aid featured in the predecessor Title XX program. Pub.L. No. 97-35, Sec. 2352(a), 95 Stat. 357, 867 (1981). The stated goals of Title XX remain unchanged, compare 42 U.S.C. Sec. 1397 (1976) with 42 U.S.C. Sec. 1397 (1982). The "new" Title XX includes the following provision for recovery of misspent federal funds: "Each State shall repay to the United States amounts ultimately found not to have been expended in accordance with [Title XX], or the Secretary may offset such amounts against any other amount to which the State is or may become entitled under [Title XX]." 42 U.S.C. Sec. 1397e(b) (1982).

The events leading to this appeal began in August, 1981, when HHS audited Maryland's Title XX training program for fiscal years 1977 and 1978. The HHS auditors reported that Maryland had neglected to determine whether it would need to employ the trainees receiving assistance, and, contrary to HHS regulations, delegated to the schools involved "all functions concerning financial assistance to students." Audit Report at 14, J.A. at 19. The delegated functions included "selecting students to receive assistance, obtaining employment agreements from the students selected, providing assistance payments, following up on students who completed training to ensure that they were complying with the agreements, and recouping the amount of financial assistance provided students who did not comply with the agreements." Id. at 15, J.A. at 20. "These circumstances combined," the audit report concluded, "resulted in 153 of the 228 graduates who received stipends not meeting their employment agreements either because they chose not to, or because DHR did not offer them employment." Id. at 13, J.A. at 18. The report recommended that the federal share of the stipends received by the 153 non-complying trainees, which totalled $207,350, be "disallowed." Id. at 17, J.A. at 22.

The HHS Regional Administrator adopted the auditors' recommendation. Letter from HHS Regional Administrator W.A. Crunk to MDHR Secretary Kalman R. Hettleman (Feb. 10, 1982) [hereinafter cited as Crunk Letter], J.A. at 33-34. Maryland appealed to the HHS Departmental

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Grant Appeals Board, which upheld the disallowance, Board op. at 1, J.A. at 34-45, and HHS thereafter directed Maryland to "report the amount of this disallowance on line 10B of form SRS-OA41 for the quarter ended September 30, 1982." Bradley Letter, J.A. at 46. Maryland then brought this action challenging HHS's final decision in the district court. The United States received permission to intervene as a party defendant in order to assert a counterclaim against Maryland. The counterclaim asked for judgment in the amount of the disallowed funds. The district court affirmed HHS's final decision. The district court both upheld the disallowance and, reaching the question of remedies, held that "administrative recovery by HHS was in this case both rational and proper." Mem. op. at 8, J.A. at 54. Because the district court affirmed HHS's authority to direct administrative recovery, it dismissed the motion for judgment on the counterclaim as moot. This appeal followed.

II.

Before passing to the merits of this appeal, we first specify the grounds on which our jurisdiction rests. There is no provision in the Social Security Act for review of administrative action taken under Title XX. As the Supreme Court recently observed, however, in administrative cases where the organic statute is silent on the subject of judicial review "[t]he presumption that review is available, see 5 U.S.C. Secs. 701(a), 702, 704; Abbott Laboratories v. Gardner, 387 U.S. 136, 140, 87 S.Ct. 1507, 1510, 18 L.Ed.2d 681 (1967), coupled with the absence of any indication in the statute that the decision is committed wholly to the discretion of the agency or that review is otherwise precluded, see 5 U.S.C. Sec. 701(a), leads to the conclusion that the district court[ ] would have had jurisdiction under the general grant of jurisdiction over cases involving federal questions, 28 U.S.C. Sec. 1331 (1976 ed. Supp. ed. V)." Bell v. New Jersey, 461 U.S. 773, 778 n. 3, 103 S.Ct. 2187, 2190 n. 3, 76 L.Ed.2d 312 (1983) (dictum) (additional citations omitted). 1 The Court's statement was dictum because Congress had specifically provided for judicial review of the agency action challenged in Bell. But since that statement was made in a context closely analogous to the situation here, we attach some weight to it as an indication that the district court had jurisdiction under 28 U.S.C. Sec. 1331, and that we accordingly have jurisdiction to review the district court's decision under 28 U.S.C. Sec. 1291 (1982). Nonetheless, because the point is jurisdictional, we shall explain why we think the analysis sketched in Bell can properly be applied here.

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Our explanation requires us to establish two propositions. The first proposition is that the equitable relief sought here falls within the scope of the Administrative procedure Act's waiver of sovereign immunity, which is...

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