Bell v. New Jersey and Pennsylvania

• Citation: 461 U.S. 773,103 S.Ct. 2187,76 L.Ed.2d 312
• Decision Date: 31 May 1983
• Docket Number: No. 81-2125,81-2125
• Parties: Terrel H. BELL, Secretary of Education, Petitioner v. NEW JERSEY AND PENNSYLVANIA
• Court: United States Supreme Court

461 U.S. 773

103 S.Ct. 2187

76 L.Ed.2d 312

Terrel H. BELL, Secretary of Education, Petitioner

v NEW JERSEY AND PENNSYLVANIA.

No. 81-2125.

Argued April 18, 1983.

Decided May 31, 1983.

Syllabus

Respondent States received funds as part of the federal grant-in-aid program under Title I of the Elementary and Secondary Education Act of 1965 (ESEA), a program designed to improve the educational opportunities available to disadvantaged children. Subsequently, federal auditors determined that each State had misapplied the funds. The Education Appeal Board (Board) while modifying the auditors' findings, assessed deficiencies against both States. The Secretary of Education (Secretary) declined to review the orders establishing the deficiencies, and, after a period for comment, the orders became final. Both States filed petitions for review in the Court of Appeals, which consolidated the cases and held that the Department of Education did not have the authority to issue the orders.

Held:

1. The Court of Appeals had jurisdiction of the cases under both § 195 of ESEA—which permits judicial review in the courts of appeals of the Secretary's final action with respect to audits—and § 455 of the General Education Provisions Act (GEPA)—which permits such review of actions of the Board. In the absence of an appealable collateral order, federal courts may exercise jurisdiction only over a final order of the Department of Education. Here, the fact that the Board's order merely established the amount of the deficiencies, leaving for further "discussion" the method of repayment, did not render the orders less than "final." The agency's determination of the deficiencies represented a definitive statement of its position, determining the rights and obligations of the parties. Pp. 777-780.

2. The provisions of § 207(a)(1) of ESEA and § 415 of GEPA which required payments of federal grants to States under ESEA to take into account or make adjustments for any overpayments or underpayments in previous grants—in effect during the periods in which the audits in these cases were conducted gave the Government the right to recover misused funds granted to a State under Title I of ESEA. Pp. 780-790.

(a) The plain language of the statutes recognized this right, and the legislative history supports this reading. Pp. 782-787.

(b) Even if § 415 were interpreted to cover payments made "accidently," it covers misused payments. Grants of misused funds result from the "accident" of the Secretary's reliance on assurances by the State that it will use the funds in a program that complies with Title I, when in fact the recipient misuses the funds. P.787.

(c) To construe §§ 207(a)(1) and 415 to provide for liability does not leave meaningless § 185 of the Education Amendments of 1978, which was enacted after the audits here occurred and makes explicit the Secretary's authority to recover funds misspent by the recipient State. On the contrary, § 185 plays an important role in specifying the procedures to be followed in determining the amount of the deficiency and in collecting it. Pp. 788-790.

3. Imposition of liability for misused funds does not interfere with state sovereignty in violation of the Tenth Amendment. Requiring States to honor the obligations voluntarily assumed as a condition of federal funding before recognizing their ownership of the funds does not intrude on their sovereignty. If the conditions for receiving the funds are valid, the State has no sovereign right to retain the funds without complying with those conditions. Pp.790-791

4. The initial determination of the existence and amount of the liability for funds misused by a State are to be made administratively by the Department of Education. And the State may seek judicial review of such determination in the courts of appeals as to whether the Secretary's findings are supported by substantial evidence and reflect application of the proper legal standards. Pp. 791-792.

662 F.2d 208 (3 Cir., 1981), reversed and remanded.

Kenneth S. Geller, Washington, D.C., for petitioner.

Margaret Hunting, Harrisburg, Pa., for respondent Com. of Pennsylvania.

Michael R. Cole, Trenton, N.J., for respondent State of N.J Justice O'CONNOR delivered the opinion of the Court.

In this case we consider both the rights of the Federal Government when a State misuses funds advanced as part of a federal grant-in-aid program under Title I of the Elementary and Secondary Education Act and the manner in which the Government may assert those rights. We hold that the Federal Government may recover misused funds, that the Department of Education may determine administratively the amount of the debt, and that the State may seek judicial review of the agency's determination.

I

The respondents, New Jersey and Pennsylvania, received grants from the Federal Government under Title I of the Ele- mentary and Secondary Education Act of 1965 (ESEA), Pub. 89-10, 79 Stat. 27, as amended, 20 U.S.C. § 2701 et seq. (1976 ed. Supp. V). Title I created a program designed to improve the educational opportunities available to disadvantaged children. § 102, 20 U.S.C. § 2702 (1976 ed. Supp. V). Local educational agencies obtain federal grants through state educational agencies, which in turn obtain grants from the Department of Education ¹ upon providing assurances to the Secretary that the local educational agencies will spend the funds only on qualifying programs. § 182(a), 20 U.S.C. § 2832 (1976 ed. Supp. V).² In auditing New Jersey for the period September 1, 1970 through August 1973, and Pennsylvania for the period July 1, 1967 through June 30, 1973, to ensure compliance with ESEA and the regulations promulgated under ESEA, federal auditors determined that each State had misapplied funds. After review requested by the States, the Education Appeal Board (the Board) modified the findings of the auditors and assessed a deficiency of $1,031,304 against New Jersey and a deficiency of $422,424.29 against Pennsylvania. The Secretary declined to review the orders establishing the deficiencies, and, after a period for comment, the orders became final. See App. to Pet. for Cert. 57a, 86a-87a. Both States filed timely petitions for review in the United States Court of Appeals for the Third Circuit, which consolidated the cases and held that the Department did not have the authority to issue the orders, 662 F.2d 208. It therefore did not reach New Jersey's arguments that the State had not in fact misapplied the funds, App. to Pet. for Cert. 3a, or Pennsylvania's arguments challenging the agency's rulemaking procedures and its application of ESEA's limitations provision, ibid.

II

The threshold question in this case, one that need not detain us long, is whether the court below had jurisdiction. Since federal courts are courts of limited jurisdiction, the court below could hear the case only if authorized by statute. It premised its exercise of jurisdiction alternatively on § 195 of ESEA, 20 U.S.C. § 2851 (1976 ed. Supp. V), and on § 455 of the General Education Provisions Act (GEPA), Pub. 95-561, 92 Stat. 2350, 20 U.S.C. § 1234d (1976 ed. Supp. V). The first provision permits judicial review in the courts of appeal of the Secretary's final action with respect to audits, and the second permits judicial review in the courts of appeal of actions of the Board.³ Although only § 195 explicitly requires "final" action, we think that a final order is necessary under either section. The strong presumption is that judicial review will be available only when agency action becomes final, FPC v. Metropolitan Edison, 304 U.S. 375, 383-385, 58 S.Ct. 963, 966-967, 82 L.Ed. 1408 (1938); see generally 5 U.S.C. § 704; 16 C. Wright, A. Miller, E. Cooper & E. Gressman, Federal Practice and Procedure § 3942 (1977), and there is nothing in § 455 to overcome that presumption. Indeed, § 455 provides judicial review of decisions made under §§ 452, 453, and 454, 20 U.S.C. §§ 1234a, 1234b, 1234c (1976 ed. Supp. V), each of which includes a subsection dealing with finality and suggesting that only a "decision" of the Board is subject to review. See §§ 452(d), 453(d), 454)d, 20 U.S.C. §§ 1234a(d), 1234b(d), 1234c(d) (1976 ed. Supp. V). Consequently, we conclude that, at least in the absence of an appealable collateral order, Mathews v. Eldridge, 424 U.S. 319, 331, n. 11, 96 S.Ct. 893, 901, n. 11, 47 L.Ed.2d 18 (1976); Cohen v. Beneficial Finance Corp., 337 U.S. 541, 545-547, 69 S.Ct. 1221, 1225-1226, 93 L.Ed. 1528 (1949), the federal courts may exercise jurisdiction only over a final order of the Department. We therefore must determine whether this case meets that requirement.

The Board's order, which became the agency's decision, merely established the amount of the deficiency owed by the States to the Federal Government, leaving for further "discussion" the method of repayment.⁴ See App. to Pet. for Cert. 88a, 90a. The possibility of further proceedings in the agency to determine the method of repayment does not, in our view, render the orders less than "final." The situation here corresponds to the ordinary adjudication by a trial court that a plaintiff has a right to damages. Although the judgment in favor of the plaintiff is not self-executing and he may have to undertake further proceedings to collect the damages awarded, that possibility does not prevent appellate review of the decision, which is final. Our cases have interpreted pragmatically the requirement of administrative finality, focusing on whether judicial review at the time will disrupt the administrative process. See, e.g., FTC v. Standard Oil Co., 449 U.S. 232, 239, 101 S.Ct. 488, 493, 66 L.Ed.2d 416 (1980); Port of Boston Marine Terminal Assn. v. Rederiaktiebolaget Transatlantic, 400 U.S. 62, 71, 91 S.Ct. 203, 209-210, 27 L.Ed.2d 203 (1970). Review of the agency's decision at this time will not disrupt administrative proceedings any more than review of a trial court's award of damages...