Adm. Para El Sustento v. Dept. of Hhs of U.S., No. 08-2169.

• Court: United States Courts of Appeals. United States Court of Appeals (1st Circuit)
• Writing for the Court: Torruella
• Citation: 588 F.3d 740
• Parties: ADMINISTRACIÓN PARA EL SUSTENTO DE MENORES (Administration for Child Support) OF the DEPARTMENT OF the FAMILY OF the COMMONWEALTH OF PUERTO RICO, Plaintiff, Appellant, v. DEPARTMENT OF HEALTH AND HUMAN SERVICES OF the UNITED STATES, Defendant, Appellee.
• Docket Number: No. 08-2169.
• Decision Date: 07 December 2009

588 F.3d 740 ADMINISTRACIÓN PARA EL SUSTENTO DE MENORES (Administration for Child Support) OF the DEPARTMENT OF the FAMILY OF the COMMONWEALTH OF PUERTO RICO, Plaintiff, Appellant,
v.
DEPARTMENT OF HEALTH AND HUMAN SERVICES OF the UNITED STATES, Defendant, Appellee. No. 08-2169. United States Court of Appeals, First Circuit. Submitted July 30, 2009. Decided December 7, 2009.

[588 F.3d 741]

Pedro J. Varela-Fernández, on brief for appellant.

Catherine Y. Hancock and Michael S. Raab, Attorneys, Appellate Staff, Civil Division, Michael F. Hertz, Acting Assistant Attorney General, Rosa E. Rodríguez-Vélez, United States Attorney. As Of Counsel: David S. Cade, Acting General Counsel, Robert E. Keith, Associate General Counsel, Children, Families & Aging Division, William Alvarado-Rivera, Chief of Litigation, Children, Families & Aging Division, on brief for appellee.

Before TORRUELLA, BOUDIN, and DYK,^* Circuit Judges.

TORRUELLA, Circuit Judge.

In this appeal, plaintiff-appellant Administration for Child Support, a unit of the Department of the Family of the Commonwealth of Puerto Rico ("Puerto Rico"), seeks review of a decision of the district court granting summary judgment in favor of the United States Department of Health and Human Services ("HHS" or "Agency") in a proceeding under the Administrative

588 F.3d 742

Procedure Act ("APA") pursuant to 42 U.S.C. § 610(c). Puerto Rico brought this action to challenge the Agency's assessment of a financial penalty against certain federal grant money used to fund Puerto Rico's child support enforcement programs, after HHS determined that Puerto Rico had failed to satisfy data reporting requirements, or meet performance benchmarks, in consecutive fiscal years.

Puerto Rico contends that HHS acted in an arbitrary and capricious manner when it refused to accept data submitted 45 days after the regulatory deadline, and failed to provide adequate notice of its intent to assess the penalty. It asserts that both of these actions were predicated on the Agency's unreasonable reading of applicable regulations. The district court rejected these contentions, concluding that the Agency's interpretation of its regulations was reasonable and entitled to deference. After careful review, we affirm.

I. Background

A. Statutory and Regulatory Framework

Puerto Rico participates in the Temporary Assistance to Needy Families, or TANF, program, which is administered by HHS pursuant to Title IV-A of the Social Security Act, 42 U.S.C. §§ 601-619. The TANF program provides block grants, also known as State Family Assistance Grants, to eligible states. See 42 U.S.C. § 603(a)(1).¹ A central purpose of these grants is to lend a hand to states which "provide assistance to needy families so that children may be cared for in their own home or in the homes of relatives." Id. § 601. Eligibility for TANF grants is predicated on the state's operation of child support enforcement programs—that is, programs designed to locate non-custodial parents, establish paternity, and obtain child and spousal support—in accordance with Title IV-D of the Social Security Act. See 42 U.S.C. §§ 651-669b; see also 42 U.S.C. § 602(a)(2).

Title IV-D enforces strict performance standards and reporting requirements on states as a condition of funding. Under this regime, states may qualify for incentive payments based on the relative effectiveness of their performance in five areas: paternity establishment, child support order establishment, current collections, average collections, and cost effectiveness. 42 U.S.C. § 658a(b)(6); 45 C.F.R. § 305.2. Each fiscal year, eligible states must submit "complete and reliable" data to demonstrate their performance in each of these areas. 42 U.S.C. § 658a(b)(5)(B); see also id. § 652(g)(1); 45 C.F.R. § 305.1(i) & (j). Data is considered "reliable" if it meets a 95% standard of reliability as determined by the Secretary of HHS, 45 C.F.R. § 305.1(i), and "complete" if it includes all reporting elements necessary to compute performance levels and is submitted within the proper timeframe, id. § 305.1(j).² HHS regulations set the deadline for submitting this data as the December 31st following the end of each fiscal year, i.e., the end of the first quarter following the conclusion of the fiscal year. See 45 C.F.R. § 305.32(f).

Based on this data, HHS calculates the amount of each state's incentive payments.

588 F.3d 743

42 U.S.C. § 658a(b). If the Secretary determines that the data submitted by the state is reliable and complete, he will determine how the state performed with respect to each of the five performance measures as compared to other eligible states; incentive payments are then allocated to each state as a share of a fixed "[i]ncentive payment pool" set aside by Congress for each fiscal year. Id. However, if the Secretary determines that the state has submitted unreliable or incomplete data for any particular performance indicator, or has failed to satisfy applicable performance benchmarks, the state will not receive an incentive payment for that indicator for that financial year. See id.

States are also subject to penalties based on their year-to-year performance in three of these areas: paternity establishment, support order establishment, and current collections. See 42 U.S.C. § 609. When in a given fiscal year a state fails to either submit complete and reliable data or satisfy substantive performance measures, the next fiscal year automatically becomes a "corrective action year" in which the state is required to improve its performance or face penalties. Id. § 609(a)(8)(A); 45 C.F.R. §§ 305.40, 305.61(a)-(b). That is, when a state in consecutive fiscal years fails either the data reporting requirement and/or the substantive performance requirement (including a reporting failure in one year and a performance failure in the other), it is subject to a penalty under the TANF program.

As is relevant here, states must establish a 90% "paternity establishment percentage," or PEP, for each year in order to qualify for an incentive payment for that performance indicator.³ 42 U.S.C. § 652(g)(1)(A). If a state's PEP falls below this 90% threshold, however, it may still satisfy this performance requirement by demonstrating a certain level of improvement over the previous fiscal year's PEP. Id. § 652(g)(1)(B)-(F); 45 C.F.R. § 305.40(a)(1). When a state fails to satisfy the PEP performance and/or reporting criteria in two consecutive years, it is subject to a penalty. The penalty assessed is a certain percentage of the TANF grant; the first failure is penalized by a 1-2% reduction, but subsequent failures may be penalized by as much as 5%. 42 U.S.C. § 609(a)(8)(B); 45 C.F.R. § 305.61(c). When a penalty is imposed, a state must expend its own funds to make up the difference. 45 C.F.R. § 262.1(e)(1).

HHS is required to "notify the State in writing" when it determines that a state is subject to a penalty. 45 C.F.R. §§ 262.7, 305.66. The notice must inform the state of the deficiency which is the basis for the penalty, as well as the reasons for, and amount of, the penalty assessed. 45 C.F.R. § 305.66(b). The penalty is imposed in the fiscal year following the Agency's final decision. 45 C.F.R. § 262.1(c)(2). States may appeal to the HHS Departmental Appeals Board ("DAB") within sixty days of receipt of such notice. 42 U.S.C. § 610(b); 45 C.F.R. §§ 262.7, 305.66.

B. Facts and Proceedings Below

The basic facts are not in dispute. On February 7, 2002, HHS notified Puerto Rico that its auditors had determined that Puerto Rico's fiscal year ("FY") 2001 PEP data was deficient. As HHS explained,

588 F.3d 744

Puerto Rico had submitted PEP data covering its performance over an eighteen-month period from January 1, 2000 to June 30, 2001, rather than the proper twelve-month period from August 1, 2000 to July 31, 2001. Thus, HHS determined that Puerto Rico's FY 2001 PEP data was not accurate because it included data prior to the reporting period, and was incomplete because it was missing data for July 2001.⁴

Puerto Rico attempted to submit corrected data on February 14, 2002. However, in a letter dated March 20, 2002, HHS informed Puerto Rico that it would not accept the corrected PEP data for purposes of calculating incentive payments because the December 31, 2001 deadline set forth in 45 C.F.R § 305.32(f) had passed. HHS explained that a "cut-off point is necessary for us to make the required performance determinations and calculations on a timely basis" because "payments of incentives cannot be made to any state until the entire process has been completed for all states in a given fiscal year." Puerto Rico thus received no PEP incentive payment for FY 2001. However, because FY 2001 data was used both to compute incentive payments for FY 2001 and to qualify for FY 2002 incentives based on improved performance, HHS indicated that it would accept the corrected PEP data covering FY 2001 for the limited purpose of determining whether Puerto Rico "qualif[ied] for incentives on the basis of improved performance in FY 2002." The corrected FY 2001 data showed a PEP of 92%.

For FY 2002, Puerto Rico submitted data which showed a PEP of 88%. This PEP fell below the minimum threshold of 90%...