Accion Social de Puerto Rico, Inc. v. Viera Perez, 87-1151

• Decision Date: 23 November 1987
• Docket Number: No. 87-1151,87-1151
• Citation: 831 F.2d 365
• Parties: ACCION SOCIAL de PUERTO RICO, INC., Plaintiff, Appellee, v. Norberto VIERA PEREZ, etc., et al., Defendants, Appellants.
• Court: U.S. Court of Appeals — First Circuit

Page 365

831 F.2d 365

ACCION SOCIAL de PUERTO RICO, INC., Plaintiff, Appellee, v. Norberto VIERA PEREZ, etc., et al., Defendants, Appellants.

No. 87-1151.

United States Court of Appeals, First Circuit.

Argued July 28, 1987.

Decided Oct. 20, 1987.

Opinion on Denial of Rehearing Nov. 23, 1987.

Pedro Juan Perez Nieves with whom Saldana, Rey, Moran & Alvarado, Santurce, P.R., was on brief, for defendants, appellants.

James L. Feldesman with whom Susan D. Lauscher and Klores, Feldesman &Tucker, Washington, D.C., were on brief, for plaintiff, appellee.

Before BOWNES, NOONAN ^* and SELYA, Circuit Judges.

BOWNES, Circuit Judge.

This consolidated appeal involves the Community Services Block Grant (CSBG) Act, 42 U.S.C. Sec. 9901 et seq. (1982), and two orders of the District Court of Puerto Rico. Appellants Norberto Viera Perez, Executive Director of Puerto Rico Office of Economic Opportunity (PROEO), and PROEO challenge two orders issued by the district court in favor of appellee Accion Social de Puerto Rico (ASPRI), a nonprofit private organization. Both orders mandated that PROEO continue funding ASPRI at the level approved for the 1985 fiscal year unless PROEO could show, in the statutorily required administrative hearing, that sufficient cause existed for termination of funding. For the reasons that follow, we vacate the orders issued by the district court.

Statutory Background

The CSBG program began in 1981, but its antecedent program dates back to 1964 with the enactment of the Economic Opportunity Act (EOA). The EOA was enacted to provide federal funds to help alleviate the causes and effects of poverty in this country. That Act was administered by the Office of Economic Opportunity, which was renamed the Community Services Administration in 1975. The CSBG Act of 1981, passed as part of the Omnibus Budget and Reconciliation Act of 1981, abolished the Community Services Administration in order to facilitate the Reagan Administration's effort to shift greater responsibility to the states for the administration of social programs. Senate Comm. on Labor and Human Resources, Human Services Reauthorization Act of 1984, S.Rep. No. 484, 98th Cong., 2d Sess., reprinted in 1984 U.S.Code Cong. & Admin.News 4847, 4849-50.

Funds appropriated under the CSBG program were allocated to the states according to the relative amounts that they had received from the Community Services Administration in fiscal year 1981. ¹ Because many states had not played a major role in developing antipoverty programs before fiscal year 1981, the Act relieved the states of initial responsibility by mandating that for fiscal year 1982 they channel at least ninety percent of their CSBG funds to eligible entities. These were the local antipoverty organizations in existence during fiscal year 1981. Id. at 4850; 42 U.S.C. Sec. 9904(c)(2)(A)(i) (1982). ²

The Act also provided that during and after fiscal year 1983, states were to use at least ninety percent of CSBG funds to provide antipoverty programs through political subdivisions of the state or through nonprofit private community organizations. 42 U.S.C. Sec. 9904(c)(2)(A)(ii) (1982). In appropriations bills for both fiscal years 1983 and 1984, however, Congress continued to require that states allocate at least ninety percent of their block grants to eligible entities, thereby restricting the amount of money that states could grant to new antipoverty organizations. 42 U.S.C. Sec. 9902 (Supp.1987).

In October 1984, the CSBG Act was amended. Although Congress, in enacting the amendments, reaffirmed its commitment to funding primarily eligible entities, it also permitted states to channel a maximum of seven percent of the funds earmarked for antipoverty programs to organizations that were not eligible entities during the prior fiscal year. The remainder was to continue going to those organizations that were eligible entities during the prior year. Congress also broadened the definition of the term eligible entity to include any organization to which a state had Congress enacted the most recent amendments to the CSBG Act in 1986. The term eligible entity was again expanded, this time to include organizations "which came into existence during fiscal year 1982 as a direct successor in interest to ... a community action agency or community action program...." 42 U.S.C. Sec. 9902(1) (Supp.1987). ⁴ The 1986 amendments also provided that review of state defunding decisions would be conducted by the Secretary through HHS' Office of Community Services (OCS). 42 U.S.C. Sec. 9905a(b) (Supp.1987).

made a grant under the Act during fiscal year 1984 pursuant to a waiver from the Secretary of Health and Human Services (HHS). 42 U.S.C. Secs. 9902(1), 9904(c)(2)(A) (Supp.1987). Finally, the 1984 amendments introduced a new provision mandating that states that sought to cut off the funding of a community action agency could do so only for cause and only after giving the affected organization notice and an opportunity for a hearing on the record. The hearing officer's decision would be subject to review by the Secretary of HHS. 42 U.S.C. Secs. 9904(c)(11)-9905a (Supp.1987). ³

The Proceedings Below

PROEO is the state entity responsible for administering CSBG funds and activities in Puerto Rico. ASPRI is a private, nonprofit organization that was created in 1982 to develop and implement community-based social welfare programs. The Commonwealth government intended that ASPRI would assume responsibility for "balance of state" CSBG activities--that is, antipoverty programs in poor communities not served by the Bayamon and San Juan municipal governments. In fiscal year 1983 PROEO designated ASPRI as an eligible entity and successor community action agency to the Puerto Rico Community Services Administration, the community action agency that had carried out balance of state programs until its termination on September 30, 1982. In fiscal years 1983 and 1984, PROEO allocated most of the CSBG funds to ASPRI for carrying out balance of state programs. In fiscal year 1985, PROEO again granted ASPRI most of the Commonwealth's CSBG allotment; in an agreement executed on October 1, 1984, PROEO agreed to give ASPRI over $11 million in monthly installments.

In November 1984, the Popular Democratic Party replaced the New Progressive Party as the ruling party in Puerto Rico. At the start of calendar year 1985, newly elected Governor Hernandez Colon appointed appellant Viera-Perez Executive Director of PROEO. PROEO did not remit to ASPRI funds for either August or September 1985, nor did it indicate whether it would provide monies to ASPRI for fiscal year 1986. ASPRI interpreted PROEO's failure to make budgetary plans for ASPRI for fiscal year 1986 as a notice of termination of funding. Regarding itself as a community action agency entitled by statute to a defunding hearing, ASPRI then filed suit against PROEO on September 27, 1985, in the United States District Court for the District of Puerto Rico. It sought preliminary and permanent injunctive relief: that the court order PROEO to acknowledge ASPRI as a community action agency entitled to a full due process hearing before termination. ASPRI also asked the court to enjoin PROEO fromwithholding funds for fiscal year 1986 and order PROEO to remit the August and September funds due pursuant to the 1984 agreement. ASPRI subsequently withdrew the latter request when PROEO delivered those funds.

The district court consolidated the preliminary injunction hearing with a hearing on the merits, and considered the propriety of the funding cutoff. On December 4, 1985, it issued an order (December 4 Order) mandating that PROEO continue funding ASPRI at the level afforded during fiscal year 1985 until an administrative hearing officer made a determination of whether there was cause to terminate funding.

Noting that the 1984 amendments to the Act required states to grant community action agencies a hearing before terminating their funding, the court concluded that PROEO's refusal of ASPRI's funding for fiscal year 1986 "violate[d] [PROEO's] assurance, as statutorily required, to provide due process prior to termination of [ASPRI's] funding."

Implicit in this conclusion was a finding by the court that ASPRI was a community action agency; only a community action agency (or a migrant and seasonal farmworker organization) is entitled to a hearing under the Act. This implicit finding became almost explicit when the court noted that the Commonwealth had designated ASPRI "as an eligible entity and successor to the Puerto Rico Community Services Administration, the agency that had served the balance of state [programs] until September 30, 1982, when it closed operations."

PROEO responded to the December 4 Order by filing a motion on December 16, 1985, under Federal Rules of Civil Procedure 52(b) and 59(a) and (e) for additional determinations of facts, additional conclusions of law, a rehearing, an amendment of judgment, and/or a stay of the order pending appeal. PROEO sought to have the court amend its judgment to find that ASPRI had no legal right to receive a defunding hearing because ASPRI did not receive special consideration as a successor agency for fiscal year 1985.

The hearing ordered by the court in its December 4 Order had, in fact, begun almost two weeks before the order issued. On November 5, 1985, PROEO formally notified ASPRI that all funding for fiscal year 1986 would be terminated. The notice also stated that, even though PROEO was not required by law to grant ASPRI a defunding hearing, PROEO would do so voluntarily. The hearing began on November 22 and resumed on December 9, after the district court issued the December 4 Order. It culminated in a decision on June 18, 1986. Finding without discussion that ASPRI was a successor community action agency to the Puerto Rico Community Services Administration, the hearing officer focused on whether ASPRI had violated the...