Chicano Educ. and Manpower Services v. U.S. Dept. of Labor, SEATTLE-KING

• Decision Date: 27 July 1990
• Docket Number: Nos. 88-7187,89-70208,SEATTLE-KING,s. 88-7187
• Citation: 909 F.2d 1320
• Parties: CHICANO EDUCATION AND MANPOWER SERVICES, Petitioner, v. UNITED STATES DEPARTMENT OF LABOR, Respondent.COUNTY EMPLOYMENT AND TRAINING CONSORTIUM (Hereinafter "Consortium"), Petitioner, v. UNITED STATES DEPARTMENT OF LABOR, Respondent.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1320

909 F.2d 1320

CHICANO EDUCATION AND MANPOWER SERVICES, Petitioner, v. UNITED STATES DEPARTMENT OF LABOR, Respondent.

SEATTLE-KING COUNTY EMPLOYMENT AND TRAINING CONSORTIUM

(Hereinafter "Consortium"), Petitioner, v. UNITED STATES DEPARTMENT OF LABOR, Respondent.

Nos. 88-7187, 89-70208.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 4, 1990.

Decided July 27, 1990.

Steve Fredrickson, Evergreen Legal Services, Seattle, Wash., for petitioner Chicano Educ. and Manpower Services.

Robert H. Alsdorf, Armstrong, Alsdorf, Bradbury & Maier, Seattle, Wash., for petitioner Seattle-King County Employment and Training Consortium.

Charles I. Hadden, Anne Payne Fuggett and Jeffrey A. Hennemuth, U.S. Dept. of Labor, Washington, D.C., for respondent.

Petition for Review of a Decision of the United States Department of Labor.

Before WRIGHT, WALLACE and KOZINSKI, Circuit Judges.

KOZINSKI, Circuit Judge:

Chicano Education and Manpower Services (CEMS) and the Seattle-King County Employment and Training Consortium (Consortium) petition for review of a decision of the Secretary of Labor holding them jointly and severally liable for repayment of funds spent in violation of Department of Labor regulations. This is the latest episode in the Department's seven-year quest to recover $105,000 it spent on adult education.

Facts

CEMS was a nonprofit educational corporation funded under the Comprehensive Employment and Training Act of 1973 (CETA), as amended and now repealed, 29 U.S.C. Secs. 801-999 (Supp. V 1981). ¹ CEMS received its funding from its prime sponsor, the Consortium, which in turn was the direct recipient of CETA funding from the Department of Labor.

In November 1976, CEMS director Jose A. Correa hired Joanna Elizondo as a substitute instructor, a job at which she worked for eight days. At the end of this employment, Correa encouraged Elizondo to apply for a permanent position as a public service employment instructor. Correa hired Elizondo for this position in January 1977.

During an investigation of CEMS operations in late 1982, the Department of Labor discovered that Ms. Elizondo was the daughter of Victor Elizondo, CEMS' chairman of the board. The Office of Inspector General concluded that Ms. Elizondo's employment violated CETA's anti-nepotism regulation, and recommended that all payments associated with that employment be disallowed. The Consortium and CEMS were given an opportunity to respond, and on October 18, 1983, the grant officer issued his final determination, upholding the disallowance of $104,954.74 in wages and fringe benefits Ms. Elizondo received between November 1976 and June 1983, when her father resigned as chairman. The grant officer instructed the Consortium to arrange for repayment of the disallowed costs.

CEMS and the Consortium sought review of the grant officer's determination before an administrative law judge. Following a hearing, the ALJ issued his decision in February 1985. Although he found that CEMS had violated the CETA nepotism regulation, the ALJ concluded that the equities of the case precluded the government from collecting the disallowed costs associated with Ms. Elizondo's employment. In particular, the ALJ found that CEMS' violation was inadvertent, that CEMS hired Ms. Elizondo because she was the best available candidate emerging from normal application and job announcement procedures, and that she was "especially well qualified for the position." He concluded that "[h]er hiring under such circumstances was in the best interest of the CEMS program and as a consequence the monies for her salary from the CETA grant funds were expended in the exact manner for which they were intended." ALJ Decision and Order (Feb 13, 1985) at 5.

The grant officer filed exceptions to the ALJ's decision with the Secretary of Labor, serving both CEMS and the Consortium. The Secretary stayed the proceedings pending a decision in Brock v. Pierce County, 476 U.S. 253, 106 S.Ct. 1834, 90 L.Ed.2d 248 (1986). ² Following that decision, the Secretary set a briefing schedule in August 1986. CEMS and the grant officer filed briefs; the Consortium did not.

The Secretary issued her final decision and order on March 14, 1988. She adopted the ALJ's determination that CEMS had violated the CETA nepotism regulation, but concluded that the ALJ should not have considered the equities. The Secretary therefore ordered CEMS to reimburse the Department of Labor $104,954.74. The Consortium was not named as a party to this decision or held liable for repayment of the funds.

CEMS filed a timely petition for review. In December 1988, the Department moved to remand the case to the Secretary to permit her to amend the final decision and order to name the Consortium as an additional party responsible for repayment of the disallowed costs. CEMS opposed the motion. On January 20, 1989, another panel of this court granted the motion.

On remand, the Secretary issued a show cause order to which both CEMS and the Consortium responded. The Secretary issued an order on March 6, 1989, finding that the failure to include the Consortium in her 1988 decision was an inadvertent omission. The Secretary amended that decision to hold the Consortium jointly and severally liable along with CEMS for repayment of the funds.

The Consortium petitioned for review of the Secretary's amended decision, and we consolidated the two appeals.

Discussion

I. Nepotism

At the time CEMS employed Joanna Elizondo, the CETA anti-nepotism regulation read:

No grantee, subgrantee, contractor or employing agency may hire a person in an administrative capacity, staff position or public service employment position funded under the Act if a member of his or her immediate family is employed in an administrative capacity for the same grantee or its subgrantees, contractors, or employing agencies.

29 CFR Sec. 98.22(a) (1976). The ALJ concluded that Victor Elizondo was "employed in an administrative capacity" with CEMS at the time his daughter was hired, and that her employment therefore violated the regulation. The Secretary adopted this determination.

CEMS argues that this determination was in error. It claims that Mr. Elizondo was not "employed" by CEMS because he served in a voluntary position as chairman of the board, and that he was not in an "administrative capacity" as that term was defined by CETA regulations.

The ALJ, and therefore the Secretary, rejected both of these arguments. We will reverse the Secretary's decision if it was "arbitrary, capricious, [or] an abuse of discretion." 5 U.S.C. Sec. 706(2)(A) (1982). In reviewing the Secretary's decision we show great deference to her interpretation of her own regulations. Such an interpretation is controlling unless it is plainly erroneous or inconsistent with the regulation. Udall v. Tallman, 380 U.S. 1, 16-17, 85 S.Ct. 792, 801, 13 L.Ed.2d 616 (1965); Blackfeet Tribe v. Dept. of Labor, 808 F.2d 1355, 1357 (9th Cir.1987). The Secretary's interpretation need not be the only one permitted by the regulation, only a reasonable one. Udall, 380 U.S. at 4, 85 S.Ct. at 795. We review the Secretary's findings of fact for substantial evidence. Blackfeet Tribe, 808 F.2d at 1357; 29 U.S.C. Sec. 817(b) (Supp. V 1981).

The Secretary determined that the term "employed" does not necessarily refer to one who works for money, but might be interpreted in the more general sense of "to put to use or service." Secretary's Final Decision (March 14, 1988) at 4, quoting The American Heritage Dictionary. In this sense, the chairman of the board is employed by CEMS. There are many situations where individuals perform work on a voluntary basis but are nevertheless considered employees of the organization for a variety of purposes. We cannot say that the Secretary's interpretation of her own regulation was unreasonable.

CETA regulations defined "person in an administrative capacity" as:

those persons who have overall administrative responsibility for a program, including: all elected and appointed officials who have any responsibility for the obtaining of and/or approval of any grant funded under the Act as well as other officials who have any influence or control over the administration of the program, such as the project director, deputy director and unit chiefs; and persons who have selection, hiring, placement or supervisory responsibilities for public service employment participants.

29 CFR Sec. 98.22(b)(3) (1976). CEMS contends that during the time of Ms. Elizondo's employment, all employment decisions were made by Jose Correa, the executive director, and not by the board of directors or Mr. Elizondo as its chairman. This argument ignores the obvious fact that the definition is not limited to those with responsibility over employment decisions. Moreover, the Secretary determined that, regardless of whether Mr. Elizondo was involved in personnel decision making, the board of directors retained overall administrative responsibility as contemplated by the regulation. Indeed, it is undisputed that the executive director reported to the board, that the board had the power to hire and fire the executive director, and that the corporate by-laws gave the chairman of the board responsibility for such duties as the execution of contracts for the corporation. We thus see no reason to disturb the Secretary's determination that Mr. Elizondo was employed in an administrative capacity by CEMS at the time CEMS hired his daughter, and that CEMS violated the CETA anti-nepotism regulation for the period of Ms. Elizondo's employment from November 1976 to June 1983.

II. Special Circumstances

A. The Viability of Quechan

CETA section 106(d)(2), 29 U.S.C. Sec. 816(d)(2) (Supp. V 1981), requires that the Secretary order repayment of funds spent in public service employment programs ³ in violation of certain statutory sections and regulations, including the nepotism regulation. Repayment may be excused,...